|
12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Bunge’s various financial instruments include certain components of working capital such as cash and cash equivalents, trade accounts receivable and trade accounts payable. Additionally, Bunge uses short and long-term debt to fund operating requirements. Cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt are stated at their carrying value, which is a reasonable estimate of fair value. See Note 13 for deferred purchase price receivable (DPP) related to sales of trade receivables. See Note 10 for long-term receivables from farmers in Brazil, net and see Note 14 for long-term debt. Bunge’s financial instruments also include derivative instruments and marketable securities, which are stated at fair value.
Fair value is the expected price that would be received for an asset or paid to transfer a liability (an exit price) in Bunge’s principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Bunge determines the fair values of its readily marketable inventories, derivatives and certain other assets based on the fair value hierarchy established in a FASB issued standard, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs based on market data obtained from sources independent of Bunge that reflect the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are inputs that are developed based on the best information available in circumstances that reflect Bunge’s own assumptions based on market data and on assumptions that market participants would use in pricing the asset or liability. The standard describes three levels within its hierarchy that may be used to measure fair value.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange traded derivative contracts.
Level 2: Observable inputs, including Level 1 prices (adjusted); quoted prices for similar assets or liabilities; quoted prices in markets that are less active than traded exchanges; and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include readily marketable inventories and over-the-counter (OTC) commodity purchase and sale contracts and other OTC derivatives whose value is determined using pricing models with inputs that are generally based on exchange traded prices, adjusted for location specific inputs that are primarily observable in the market or can be derived principally from or corroborated by observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, Bunge gives consideration to items that individually, or when aggregated with other inputs, generally represent more than 10% of the fair value of the assets or liabilities. For such identified inputs, judgments are required when evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification and disclosure. Level 3 assets and liabilities include assets and liabilities whose value is determined using proprietary pricing models, discounted cash flow methodologies, or similar techniques, as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.
The majority of Bunge’s exchange traded agricultural commodity futures are settled daily generally through its clearing subsidiary and therefore, such futures are not included in the table below. Assets and liabilities are classified in their entirety based on the lowest level of input that is a significant component of the fair value measurement. The lowest level of input is considered Level 3. Bunge’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels. The following table sets forth, by level, Bunge’s assets and liabilities that were accounted for at fair value on a recurring basis.
|
|
|
Fair Value Measurements at Reporting Date |
|
|
|
|
September 30, 2011 |
|
December 31, 2010 |
|
|
(US$ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readily marketable inventories (Note 5) |
|
$ |
— |
|
$ |
4,049 |
|
$ |
353 |
|
$ |
4,402 |
|
$ |
— |
|
$ |
4,567 |
|
$ |
264 |
|
$ |
4,831 |
|
|
Unrealized gain on designated derivative contracts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
— |
|
28 |
|
— |
|
28 |
|
— |
|
— |
|
— |
|
— |
|
|
Foreign Exchange |
|
— |
|
30 |
|
— |
|
30 |
|
— |
|
22 |
|
— |
|
22 |
|
|
Unrealized gain on undesignated derivative contracts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
— |
|
— |
|
— |
|
— |
|
— |
|
4 |
|
— |
|
4 |
|
|
Foreign Exchange |
|
— |
|
484 |
|
3 |
|
487 |
|
2 |
|
209 |
|
1 |
|
212 |
|
|
Commodities |
|
79 |
|
1,269 |
|
181 |
|
1,529 |
|
114 |
|
1,754 |
|
454 |
|
2,322 |
|
|
Freight |
|
7 |
|
6 |
|
— |
|
13 |
|
1 |
|
22 |
|
3 |
|
26 |
|
|
Energy |
|
15 |
|
9 |
|
11 |
|
35 |
|
9 |
|
11 |
|
16 |
|
36 |
|
|
Deferred Purchase Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable (Note 13) |
|
— |
|
155 |
|
— |
|
155 |
|
— |
|
— |
|
— |
|
— |
|
|
Other (2) |
|
163 |
|
34 |
|
— |
|
197 |
|
252 |
|
88 |
|
— |
|
340 |
|
|
Total assets |
|
$ |
264 |
|
$ |
6,064 |
|
$ |
548 |
|
$ |
6,876 |
|
$ |
378 |
|
$ |
6,677 |
|
$ |
738 |
|
$ |
7,793 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on designated derivative contracts (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange (4) |
|
$ |
— |
|
$ |
55 |
|
$ |
— |
|
$ |
55 |
|
$ |
— |
|
$ |
22 |
|
$ |
— |
|
$ |
22 |
|
|
Unrealized loss on undesignated derivative contracts (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
— |
|
3 |
|
— |
|
3 |
|
— |
|
1 |
|
— |
|
1 |
|
|
Foreign Exchange |
|
— |
|
808 |
|
— |
|
808 |
|
— |
|
69 |
|
— |
|
69 |
|
|
Commodities |
|
225 |
|
778 |
|
102 |
|
1,105 |
|
692 |
|
1,167 |
|
162 |
|
2,021 |
|
|
Freight |
|
2 |
|
— |
|
— |
|
2 |
|
— |
|
— |
|
— |
|
— |
|
|
Energy |
|
7 |
|
1 |
|
15 |
|
23 |
|
8 |
|
1 |
|
5 |
|
14 |
|
|
Total liabilities |
|
$ |
234 |
|
$ |
1,645 |
|
$ |
117 |
|
$ |
1,996 |
|
$ |
700 |
|
$ |
1,260 |
|
$ |
167 |
|
$ |
2,127 |
|
(1) Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. Included in other non-current assets are unrealized gains of $28 million and zero at September 30, 2011 and December 31, 2010, respectively.
(2) Other assets include primarily the fair values of U.S. Treasury securities held as margin deposits.
(3) Unrealized losses on designated and undesignated derivative contracts are generally included in other current liabilities. There are no such amounts included in other non-current liabilities at September 30, 2011 and December 31, 2010.
(4) Included in current portion of long-term debt are unrealized losses of $29 million and $22 million at September 30, 2011 and December 31, 2010, respectively.
Derivatives — Exchange traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunge’s forward commodity purchase and sale contracts are classified as derivatives along with other OTC derivative instruments relating primarily to freight, energy, foreign exchange and interest rates, and are classified within Level 2 or Level 3 as described below. Bunge estimates fair values based on exchange quoted prices, adjusted as appropriate for differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, or market transactions in either the listed or OTC markets. In such cases, these derivative contracts are classified within Level 2. Changes in the fair values of these contracts are recognized in the condensed consolidated financial statements as a component of cost of goods sold, foreign exchange gains (losses), interest income (expense), other income (expense), net or other comprehensive income (loss).
OTC derivative contracts include swaps, options and structured transactions that are valued at fair value generally determined using quantitative models that require the use of multiple market inputs including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets which are not highly active, other observable inputs relevant to the asset or liability, and market inputs corroborated by correlation or other means. These valuation models include inputs such as interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives trade in less active markets with less availability of pricing information and certain structured transactions can require internally developed model inputs that might not be observable in or corroborated by the market. When unobservable inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.
Bunge designates certain derivative instruments as fair value hedges or cash flow hedges and assesses, both at inception of the hedge and on an ongoing basis, whether derivatives that are designated as hedges are highly effective in offsetting changes in the hedged items or anticipated cash flows.
Readily marketable inventories — The majority of Bunge’s readily marketable commodity inventories are valued at fair value. These agricultural commodity inventories are readily marketable, have quoted market prices and may be sold without significant additional processing. Changes in the fair values of these inventories are recognized in the condensed consolidated statements of income as a component of cost of goods sold.
Readily marketable inventories reported at fair value are valued based on commodity futures exchange quotations, broker or dealer quotations, or market transactions in either listed or OTC markets with appropriate adjustments for differences in local markets where Bunge’s inventories are located. In such cases, the inventory is classified within Level 2. Certain inventories may utilize significant unobservable data related to local market adjustments to determine fair value. In such cases, the inventory is classified as Level 3.
If Bunge used different methods or factors to determine fair values, amounts reported as unrealized gains and losses on derivative contracts and readily marketable inventories at fair value in the condensed consolidated balance sheets and condensed consolidated statements of income could differ. Additionally, if market conditions change subsequent to the reporting date, amounts reported in future periods as unrealized gains and losses on derivative contracts and readily marketable inventories in the condensed consolidated balance sheets and condensed consolidated statements of income could differ.
Level 3 Valuation — Bunge’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In evaluating the significance of fair value inputs, Bunge gives consideration to items that individually, or when aggregated with other inputs, represent more than 10% of the fair value of the asset or liability. For such identified inputs, judgments are required when evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification and disclosure. Because of differences in the availability of market pricing data over their terms, inputs for some assets and liabilities may fall into any one of the three levels in the fair value hierarchy or some combination thereof. While FASB guidance requires Bunge to classify these assets and liabilities in the lowest level in the hierarchy for which inputs are significant to the fair value measurement, a portion of that measurement may be determined using inputs from a higher level in the hierarchy.
Transfers in and/or out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period.
Level 3 Derivatives — Level 3 derivative instruments utilize both market observable and unobservable inputs within the fair value measurements. These inputs include commodity prices, price volatility factors, interest rates, volumes and locations. In addition, with the exception of the exchange cleared instruments where Bunge clears trades through an exchange, Bunge is exposed to loss in the event of the non-performance by counterparties on over-the-counter derivative instruments and forward purchase and sale contracts. Adjustments are made to fair values on occasions when non-performance risk is determined to represent a significant input in Bunge’s fair value determination. These adjustments are based on Bunge’s estimate of the potential loss in the event of counterparty non-performance.
Level 3 Readily marketable inventories — Readily marketable inventories are considered Level 3 when at least one significant assumption or input is unobservable. These assumptions or unobservable inputs include certain management estimations regarding costs of transportation and other local market or location-related adjustments.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2011 and 2010. Level 3 instruments presented in the tables include readily marketable inventories and derivatives.
|
|
|
Level 3 Instruments: |
|
|
|
|
Fair Value Measurements |
|
|
|
|
Three Months Ended September 30, 2011 |
|
|
|
|
|
|
Readily |
|
|
|
|
|
|
Derivatives, |
|
Marketable |
|
|
|
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
|
|
Balance, July 1, 2011 |
|
$ |
134 |
|
$ |
722 |
|
$ |
856 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
(42 |
) |
65 |
|
23 |
|
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
2 |
|
— |
|
2 |
|
|
Purchases |
|
24 |
|
264 |
|
288 |
|
|
Sales |
|
(1 |
) |
(749 |
) |
(750 |
) |
|
Issuances |
|
(30 |
) |
— |
|
(30 |
) |
|
Settlements |
|
17 |
|
— |
|
17 |
|
|
Transfers into Level 3 |
|
1 |
|
124 |
|
125 |
|
|
Transfers out of Level 3 |
|
(27 |
) |
(73 |
) |
(100 |
) |
|
Balance, September 30, 2011 |
|
$ |
78 |
|
$ |
353 |
|
$ |
431 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
|
|
|
Level 3 Instruments: |
|
|
|
|
Fair Value Measurements |
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
|
|
|
|
Readily |
|
|
|
|
|
|
Derivatives, |
|
Marketable |
|
|
|
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
|
|
Balance, July 1, 2010 |
|
$ |
47 |
|
$ |
354 |
|
$ |
401 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
156 |
|
130 |
|
286 |
|
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
(2 |
) |
— |
|
(2 |
) |
|
Purchases, issuances and settlements |
|
(37 |
) |
(225 |
) |
(262 |
) |
|
Transfers into Level 3 |
|
5 |
|
2 |
|
7 |
|
|
Transfers out of Level 3 |
|
1 |
|
— |
|
1 |
|
|
Balance, September 30, 2010 |
|
$ |
170 |
|
$ |
261 |
|
$ |
431 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2011 and 2010. Level 3 instruments presented in the tables include readily marketable inventories and derivatives.
|
|
|
Level 3 Instruments: |
|
|
|
|
Fair Value Measurements |
|
|
|
|
Nine Months Ended September 30, 2011 |
|
|
|
|
|
|
Readily |
|
|
|
|
|
|
Derivatives, |
|
Marketable |
|
|
|
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
|
|
Balance, January 1, 2011 |
|
$ |
307 |
|
$ |
264 |
|
$ |
571 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
(160 |
) |
157 |
|
(3 |
) |
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
2 |
|
— |
|
2 |
|
|
Purchases |
|
95 |
|
1,750 |
|
1,845 |
|
|
Sales |
|
(1 |
) |
(2,111 |
) |
(2,112 |
) |
|
Issuances |
|
(89 |
) |
— |
|
(89 |
) |
|
Settlements |
|
(40 |
) |
— |
|
(40 |
) |
|
Transfers into Level 3 |
|
15 |
|
398 |
|
413 |
|
|
Transfers out of Level 3 |
|
(51 |
) |
(105 |
) |
(156 |
) |
|
Balance, September 30, 2011 |
|
$ |
78 |
|
$ |
353 |
|
$ |
431 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
|
|
|
Level 3 Instruments: |
|
|
|
|
Fair Value Measurements |
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
Readily |
|
|
|
|
|
|
Derivatives, |
|
Marketable |
|
|
|
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
|
|
Balance, January 1, 2010 |
|
$ |
31 |
|
$ |
109 |
|
$ |
140 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
141 |
|
284 |
|
425 |
|
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains |
|
(2 |
) |
— |
|
(2 |
) |
|
Purchases, issuances and settlements |
|
(21 |
) |
(134 |
) |
(155 |
) |
|
Transfers into Level 3 |
|
35 |
|
2 |
|
37 |
|
|
Transfers out of Level 3 |
|
(14 |
) |
— |
|
(14 |
) |
|
Balance, September 30, 2010 |
|
$ |
170 |
|
$ |
261 |
|
$ |
431 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
The table below summarizes changes in unrealized gains or (losses) recorded in earnings during the three months ended September 30, 2011 and 2010 for Level 3 assets and liabilities that were held at September 30, 2011 and 2010.
|
|
|
Level 3 Instruments: |
|
|
|
|
Fair Value Measurements |
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Readily |
|
|
|
|
|
|
Derivatives, |
|
Marketable |
|
|
|
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
|
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2011 |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
(15 |
) |
$ |
30 |
|
$ |
15 |
|
|
Foreign exchange gains (losses) |
|
$ |
2 |
|
$ |
— |
|
$ |
2 |
|
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2010 |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
194 |
|
$ |
106 |
|
$ |
300 |
|
|
Foreign exchange gains (losses) |
|
$ |
(2 |
) |
$ |
— |
|
$ |
(2 |
) |
(1) Derivatives, net include Level 3 derivative assets and liabilities.
The table below summarizes changes in unrealized gains or (losses) recorded in earnings during the nine months ended September 30, 2011 and 2010 for Level 3 assets and liabilities that were held at September 30, 2011 and 2010.
|
|
|
Level 3 Instruments: |
|
|
|
|
Fair Value Measurements |
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
Readily |
|
|
|
|
|
|
Derivatives, |
|
Marketable |
|
|
|
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
|
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2011 |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
(30 |
) |
$ |
244 |
|
$ |
214 |
|
|
Foreign exchange gains (losses) |
|
$ |
3 |
|
$ |
— |
|
$ |
3 |
|
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2010 |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
268 |
|
$ |
159 |
|
$ |
427 |
|
|
Foreign exchange gains (losses) |
|
$ |
(3 |
) |
$ |
— |
|
$ |
(3 |
) |
(1) Derivatives, net include Level 3 derivative assets and liabilities.
Derivative Instruments
Interest rate derivatives — Interest rate swaps used by Bunge as hedging instruments have been recorded at fair value in the condensed consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. Certain of these swap agreements have been designated as fair value hedges. The carrying amount of the associated hedged debt is also adjusted through earnings for changes in the fair value arising from changes in benchmark interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset. Bunge enters into interest rate swap agreements for the purpose of managing certain of its interest rate exposures. Bunge may also enter into interest rate basis swap agreements that do not qualify as hedges for accounting purposes. Changes in fair value of such interest rate basis swap agreements are recorded in earnings. There are no outstanding interest rate basis swap agreements as of September 30, 2011.
The following table summarizes Bunge’s outstanding interest rate swap agreements.
|
|
|
September 30, 2011 |
|
|
|
|
Notional Amount of |
|
Notional Amount |
|
|
(US$ in millions) |
|
Hedged Obligation |
|
Derivative (3) |
|
|
Interest rate swap agreements |
|
$ |
675 |
|
$ |
675 |
|
|
Weighted average rate payable — 1.75% (1) |
|
|
|
|
|
|
Weighted average rate receivable — 3.23% (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest is payable in arrears semi-annually based on six month U.S. dollar LIBOR and payable in arrears quarterly based on three month U.S. dollar LIBOR.
(2) Interest is receivable in arrears based on a fixed interest rate.
(3) The interest rate swap agreements mature in 2011 and 2016.
Foreign exchange derivatives — Bunge uses a combination of foreign exchange forward and option contracts in certain of its operations to mitigate the risk from exchange rate fluctuations in connection with certain commercial and balance sheet exposures. The foreign exchange forward and option contracts may be designated as cash flow hedges. Bunge may also use net investment hedges to partially offset the translation adjustments arising from the remeasurement of its investment in certain of its foreign subsidiaries.
Bunge assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedge transactions are highly effective in offsetting changes in the hedged items.
The table below summarizes the notional amounts of open foreign exchange positions.
|
|
|
September 30, 2011 |
|
|
|
|
Exchange Traded |
|
|
|
|
|
|
|
|
|
|
Net—(Short) |
|
Non-exchange Traded |
|
Unit of |
|
|
(US$ in millions) |
|
& Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Foreign Exchange |
|
|
|
|
|
|
|
|
|
|
Options |
|
$ |
(1 |
) |
$ |
(74 |
) |
$ |
69 |
|
Delta |
|
|
Forwards |
|
97 |
|
(20,151 |
) |
12,160 |
|
Notional |
|
|
Swaps |
|
— |
|
(95 |
) |
30 |
|
Notional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Exchange traded futures and options are presented on a net (short) and long position basis.
(2) Non-exchange traded swaps, options and forwards are presented on a gross (short) and long position basis.
In addition, Bunge has cross-currency interest rate swap agreements with an aggregate notional principal amount of 10 billion Japanese Yen for the purpose of managing its currency exposure associated with its 10 billion Japanese Yen term loan. Bunge has accounted for these cross-currency interest rate swap agreements as fair value hedges. The cross-currency interest rate swap matured on October 6, 2011 along with the Japanese Yen term loan.
The following table summarizes Bunge’s outstanding cross-currency interest rate swap agreements.
|
|
|
September 30, 2011 |
|
|
|
|
Notional Amount |
|
Notional Amount |
|
|
(US$ in millions) |
|
of Hedged Obligation |
|
of Derivative (1) |
|
|
U.S. dollar/Yen cross-currency interest rate swaps |
|
$ |
130 |
|
$ |
130 |
|
|
|
|
|
|
|
|
|
(1) Under the terms of the cross-currency interest rate swap agreements, interest is payable in arrears based on three month U.S. dollar LIBOR and is receivable in arrears based on three month Yen LIBOR.
Commodity derivatives — Bunge uses derivative instruments to manage its exposure to movements associated with agricultural commodity prices. Bunge generally uses exchange traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agricultural commodity inventories and forward purchase and sale contracts, but may also from time to time enter into OTC commodity transactions, including swaps, which are settled in cash at maturity or termination based on exchange-quoted futures prices. Changes in fair values of exchange traded futures contracts representing the unrealized gains and/or losses on these instruments are settled daily generally through Bunge’s wholly-owned futures clearing subsidiary. Forward purchase and sale contracts are primarily settled through delivery of agricultural commodities. While Bunge considers these exchange traded futures and forward purchase and sale contracts to be effective economic hedges, Bunge does not designate or account for the majority of its commodity contracts as hedges. Changes in fair values of these contracts and related readily marketable agricultural commodity inventories are included in cost of goods sold in the condensed consolidated statements of income. The forward contracts require performance of both Bunge and the contract counterparty in future periods. Contracts to purchase agricultural commodities generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of agricultural commodities generally do not extend beyond one future crop cycle.
In addition, Bunge may hedge portions of its forecasted oilseed processing production requirements, including forecasted purchases of soybeans and sales of soy commodity products. The instruments used are generally exchange traded futures contracts. Such contracts hedging U.S. oilseed processing activities qualify and may be designated as cash flow hedges. Contracts that are used as economic hedges of other global oilseed processing activities generally do not qualify for hedge accounting as a result of location differences and are therefore not designated as cash flow hedges for accounting purposes.
The table below summarizes the volumes of open agricultural commodities derivative positions.
|
|
|
September 30, 2011 |
|
|
|
|
Exchange Traded |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Traded |
|
Unit of |
|
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Agricultural Commodities |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(3,764,351 |
) |
— |
|
— |
|
Metric Tons |
|
|
Options |
|
(100,220 |
) |
— |
|
— |
|
Metric Tons |
|
|
Forwards |
|
— |
|
(29,715,463 |
) |
29,358,492 |
|
Metric Tons |
|
|
Swaps |
|
— |
|
(5,601,867 |
) |
19,051 |
|
Metric Tons |
|
(1) Exchange traded futures and options are presented on a net (short) and long position basis.
(2) Non-exchange traded swaps, options and forwards are presented on a gross (short) and long position basis.
Ocean freight derivatives — Bunge uses derivative instruments referred to as freight forward agreements, or FFAs, and FFA options to hedge portions of its current and anticipated ocean freight costs. A portion of the ocean freight derivatives may be designated as fair value hedges of Bunge’s firm commitments to purchase time on ocean freight vessels. Changes in the fair value of the ocean freight derivatives that are qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged firm commitments to purchase time on ocean freight vessels that is attributable to the hedged risk, are recorded in earnings. Changes in the fair values of ocean freight derivatives that are not designated as hedges are also recorded in earnings.
The table below summarizes the open ocean freight positions.
|
|
|
September 30, 2011 |
|
|
|
|
Exchange Cleared |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Cleared |
|
Unit of |
|
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Ocean Freight |
|
|
|
|
|
|
|
|
|
|
FFA |
|
(2,408 |
) |
(92 |
) |
— |
|
Hire Days |
|
|
FFA Options |
|
(248 |
) |
— |
|
— |
|
Hire Days |
|
(1) Exchange cleared futures and options are presented on a net (short) and long position basis.
(2) Non-exchange cleared options and forwards are presented on a gross (short) and long position basis.
Energy derivatives — Bunge uses derivative instruments for various purposes including to manage its exposure to volatility in energy costs. Bunge’s operations use substantial amounts of energy, including natural gas, coal and fuel oil, including bunker fuel.
The table below summarizes the open energy positions.
|
|
|
September 30, 2011 |
|
|
|
|
Exchange
Traded |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Cleared |
|
Unit of |
|
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure (3) |
|
|
Natural Gas (3) |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(4,106,053 |
) |
— |
|
— |
|
MMBtus |
|
|
Swaps |
|
— |
|
— |
|
1,449,384 |
|
MMBtus |
|
|
Options |
|
6,996,677 |
|
— |
|
— |
|
MMBtus |
|
|
Energy—Other |
|
|
|
|
|
|
|
|
|
|
Futures |
|
193,451 |
|
— |
|
— |
|
Metric Tons |
|
|
Forwards |
|
(68,000 |
) |
(386,232 |
) |
9,150,367 |
|
Metric Tons |
|
|
Swaps |
|
— |
|
(60,496 |
) |
49,632 |
|
Metric Tons |
|
|
Options |
|
93,754 |
|
(238,930 |
) |
153,024 |
|
Metric Tons |
|
(1) Exchange traded and exchange cleared futures and options are presented on a net (short) and long position basis.
(2) Non-exchange cleared swaps, options and forwards are presented on a gross (short) and long position basis.
(3) Million British Thermal Units (MMBtus) are the standard unit of measurement used to denote the amount of natural gas.
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income
The table below summarizes the effect of derivative instruments that are designated as fair value hedges and also derivative instruments that are undesignated on the condensed consolidated statements of income.
|
|
|
|
|
Gain or (Loss) Recognized in |
|
|
|
|
|
|
Income on Derivative Instruments |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
(US$ in millions) |
|
Location |
|
2011 |
|
2010 |
|
|
Designated Derivative Contracts: |
|
|
|
|
|
|
|
|
Interest Rate (1) |
|
Interest income/Interest expense |
|
$ |
— |
|
$ |
— |
|
|
Foreign Exchange (2) |
|
Foreign exchange gains (losses) |
|
— |
|
— |
|
|
Commodities (3) |
|
Cost of goods sold |
|
— |
|
— |
|
|
Freight (3) |
|
Cost of goods sold |
|
— |
|
— |
|
|
Energy (3) |
|
Cost of goods sold |
|
— |
|
— |
|
|
Total |
|
|
|
$ |
— |
|
$ |
— |
|
|
Undesignated Derivative Contracts: |
|
|
|
|
|
|
|
|
Interest Rate |
|
Interest income/Interest expense |
|
$ |
1 |
|
$ |
8 |
|
|
Interest Rate |
|
Other income (expenses)—net |
|
— |
|
1 |
|
|
Foreign Exchange |
|
Foreign exchange gains (losses) |
|
(31 |
) |
23 |
|
|
Foreign Exchange |
|
Cost of goods sold |
|
(26 |
) |
14 |
|
|
Commodities |
|
Cost of goods sold |
|
(67 |
) |
261 |
|
|
Freight |
|
Cost of goods sold |
|
117 |
|
(36 |
) |
|
Energy |
|
Cost of goods sold |
|
(2 |
) |
(9 |
) |
|
Total |
|
|
|
$ |
(8 |
) |
$ |
262 |
|
(1) The gains or (losses) on the hedged items are included in interest income and interest expense, respectively, as are the offsetting gains or (losses) on the related interest rate swaps.
(2) The gains or (losses) on the hedged items are included in foreign exchange gains (losses).
(3) The gains or (losses) on the hedged items are included in cost of goods sold.
The table below summarizes the effect of derivative instruments that are designated and qualify as cash flow and net investment hedges in the condensed consolidated statement of income for the nine months ended September 30, 2011.
|
|
|
Nine Months Ended September 30, 2011 |
|
|
|
|
|
|
Gain or |
|
Gain or (Loss) |
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
Reclassified from |
|
Gain or (Loss) |
|
|
|
|
|
|
Recognized in |
|
Accumulated OCI into |
|
Recognized in Income |
|
|
|
|
Notional |
|
Accumulated |
|
Income (1) |
|
on Derivative (2) |
|
|
(US$ in millions) |
|
Amount |
|
OCI (1) |
|
Location |
|
Amount |
|
Location |
|
Amount (3) |
|
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange (4) |
|
$ |
450 |
|
$ |
(16 |
) |
Cost of goods sold |
|
$ |
— |
|
Cost of goods sold |
|
$ |
— |
|
|
Commodities |
|
— |
|
11 |
|
Cost of goods sold |
|
14 |
|
Cost of goods sold |
|
5 |
|
|
Total |
|
$ |
450 |
|
$ |
(5 |
) |
|
|
$ |
14 |
|
|
|
$ |
5 |
|
|
Net Investment Hedges:(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
$ |
289 |
|
$ |
27 |
|
Foreign exchange gains (losses) |
|
$ |
— |
|
Foreign exchange gains (losses) |
|
$ |
— |
|
|
Total |
|
$ |
289 |
|
$ |
27 |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
(1) The gain or (loss) recognized relates to the effective portion of the hedging relationship. At September 30, 2011, Bunge expects to reclassify into income in the next 12 months approximately $2 million of after tax gains related to its agricultural commodities cash flow hedges and ($2) million after tax losses related to its foreign exchange cash flow and net investment hedges.
(2) The gain or (loss) recognized relates to the ineffective portion of the hedging relationship and to the amount excluded from the assessment of hedging effectiveness.
(3) The amount of gain recognized in income is $5 million as of September 30, 2011, which relates to the ineffective portion of the hedging relationships, and zero, which relates to the amount excluded from the assessment of hedge effectiveness.
(4) The changes in the market value of such futures contracts have historically been, and are expected to continue to be highly effective at offsetting changes in price movements of the hedged items. The forward exchange forward contracts mature at various dates in 2011 and 2012.
(5) Bunge pays Euros and receives U.S. dollars, offsetting the translation adjustment of its net investment in Euro assets. The swaps mature in 2012.
The table below summarizes the effect of derivative instruments that are designated and qualify as cash flow and net investment hedges on the condensed consolidated statement of income for the nine months ended September 30, 2010.
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
Gain or |
|
Gain or (Loss) |
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
Reclassified from |
|
Gain or (Loss) |
|
|
|
|
|
|
Recognized in |
|
Accumulated OCI into |
|
Recognized in Income |
|
|
|
|
Notional |
|
Accumulated |
|
Income (1) |
|
on Derivative (2) |
|
|
(US$ in millions) |
|
Amount |
|
OCI (1) |
|
Location |
|
Amount |
|
Location |
|
Amount (3) |
|
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange (4) |
|
$ |
660 |
|
$ |
2 |
|
Cost of goods sold |
|
$ |
1 |
|
Cost of goods sold |
|
$ |
5 |
|
|
Commodities (5) |
|
94 |
|
19 |
|
Cost of goods sold |
|
11 |
|
Cost of goods sold |
|
3 |
|
|
Total |
|
$ |
754 |
|
$ |
21 |
|
|
|
$ |
12 |
|
|
|
$ |
8 |
|
|
Net Investment Hedges:(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
$ |
— |
|
$ |
17 |
|
Foreign exchange gains (losses) |
|
$ |
— |
|
Foreign exchange gains (losses) |
|
$ |
— |
|
|
Total |
|
$ |
— |
|
$ |
17 |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The gain or (loss) recognized relates to the effective portion of the hedging relationship. At September 30, 2010, Bunge expected to reclassify into income in the next 12 months approximately $1 million, $7 million and zero of after tax gains related to its foreign exchange, agricultural commodities and net investment cash flow hedges, respectively.
(2) The gain or (loss) recognized relates to the ineffective portion of the hedging relationship and to the amount excluded from the assessment of hedging effectiveness.
(3) The amount of loss recognized in income is $3 million, which relates to the ineffective portion of the hedging relationships and $5 million, which relates to the amount excluded from the assessment of hedge effectiveness.
(4) The foreign exchange forward contracts mature at various dates in 2010 and 2011.
(5) The changes in the market value of such futures contracts have historically been, and are expected to continue to be highly effective at offsetting changes in price movements of the hedged items. The commodities futures contracts mature at various dates in 2010 and 2011.
(6) Bunge pays Brazilian reais and receives U.S. dollars using fixed interest rates, offsetting the translation adjustment of its net investment in Brazilian reais assets. The swaps matured at various dates during 2010. In July 2010, Bunge de-designated the net investment hedge. Gains or losses due to changes in exchange rates on the de-designated swaps are recorded in the condensed consolidated statements of income going forward.
|