10.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 12 for deferred purchase price (“DPP”) receivable related to sales of trade receivables. See Note 7 for long-term receivables from farmers in Brazil, net and other long-term investments and Note 11 for long-term debt. Bunge’s financial instruments also include derivative instruments and marketable securities, which are stated at fair value.

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.

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, 2015								December 31, 2014
(US$ in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Readily marketable inventories (Note 5)	$	—	$	3,527	$	611	$	4,138	$	—	$	4,154	$	255	$	4,409
Trade accounts receivable(1)			1				1		—		23		—		23
Unrealized gain on designated derivative contracts(2):
Foreign exchange	—		132		—		132		—		10		—		10
Unrealized gain on undesignated derivative contracts (2):
Foreign exchange	—		274		—		274		5		361		—		366
Commodities	328		516		365		1,209		486		538		68		1,092
Freight	54		—		1		55		62		2		—		64
Energy	5		—		1		6		35		—		2		37
Deferred purchase price receivable (Note 12)	—		84		—		84		—		78		—		78
Other (3)	97		55		—		152		55		218		—		273

Total assets	$	484	$	4,589	$	978	$	6,051	$	643	$	5,384	$	325	$	6,352

Liabilities:
Trade accounts payable(1)	$	—	$	410	$	166	$	576	$	—	$	359	$	33	$	392
Unrealized loss on designated derivative contracts (4):
Foreign exchange	—		43		—		43		—		17		—		17
Unrealized loss on undesignated derivative contracts (4):
Foreign exchange	—		892		—		892		12		525		—		537
Commodities	274		384		46		704		426		432		59		917
Freight	48		—		1		49		64		—		3		67
Energy	14		—		3		17		80		1		10		91

Total liabilities	$	336	$	1,729	$	216	$	2,281	$	582	$	1,334	$	105	$	2,021

(1)

Trade accounts receivable and payable are generally accounted for at carrying cost, with the exception of $1 million and $576 million, at September 30, 2015 and $23 million and $392 million at December 31, 2014, respectively, related to certain delivered inventory for which the receivable and payable, respectively, fluctuate based on changes in commodity prices. These receivables and payables are hybrid financial instruments for which Bunge has elected the fair value option.

(2)

Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. There are no such amounts included in other non-current assets at September 30, 2015 and December 31, 2014, respectively.

(3)

Other includes the fair values of marketable securities and investments in other current assets and other non-current assets.

(4)

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, 2015 and December 31, 2014, 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 over-the-counter (“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.

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.

Exchange traded or cleared derivative contracts are classified in Level 1, thus transfers of assets and liabilities into and/or out of Level 1 occur infrequently. Transfers into Level 1 would generally only be expected to occur when an exchange cleared derivative contract historically valued using a valuation model as the result of a lack of observable inputs becomes sufficiently observable, resulting in the valuation price being essentially the exchange traded price. There were no significant transfers into or out of Level 1 during the periods presented.

Readily marketable inventories — 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 consolidated balance sheets and 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 at fair value in the consolidated balance sheets and consolidated statements of income could differ.

Level 3 Measurements — 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. Bunge’s policy regarding the timing of transfers between levels is to record the transfers at the beginning of the reporting 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, interest rates, volumes and locations. In addition, with the exception of the exchange cleared instruments, Bunge is exposed to loss in the event of the non-performance by counterparties on OTC 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. Bunge did not have significant adjustments related to non-performance by counterparties at September 30, 2015 and December 31, 2014.

Level 3 RMI and other — The significant unobservable inputs resulting in Level 3 classification for RMI, physically settled forward purchase and sale contracts, and trade accounts receivable and payable, net, relate to certain management estimations regarding costs of transportation and other local market or location-related adjustments, primarily freight related adjustments in the interior of Brazil and the lack of market corroborated information in Canada. In both situations, Bunge uses proprietary information such as purchase and sale contracts and contracted prices for freight, premiums and discounts to value its contracts. Movements in the price of these unobservable inputs alone would not have a material effect on Bunge’s financial statements as these contracts do not typically exceed one future crop cycle.

The tables below present reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2015 and 2014. These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.

	Level 3 Instruments
	Fair Value Measurements
	Three Months Ended September 30, 2015
							Trade
				Readily			Accounts
	Derivatives,			Marketable			Receivable/
(US$ in millions)	Net (1)			Inventories			Payable, Net(2)			Total
Balance, July 1, 2015	$	192		$	910		$	(357	)	$	745
Total gains and (losses), realized/unrealized included in cost of goods sold	217			109			(18		)	308
Purchases	—			170			(5		)	165
Sales	—			(647		)	—			(647		)
Issuances	—			—			—			—
Settlements	(91		)	—			261			170
Transfers into Level 3	(1		)	167			—			166
Transfers out of Level 3	—			(98		)	(47		)	(145		)

Balance, September 30, 2015	$	317		$	611		$	(166	)	$	762

(1)

Derivatives, net include Level 3 derivative assets and liabilities.

(2)

Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

	Level 3 Instruments
	Fair Value Measurements
	Three Months Ended September 30, 2014
							Trade
				Readily			Accounts
	Derivatives,			Marketable			Receivable/
(US$ in millions)	Net (1)			Inventories			Payable, Net (2)			Total
Balance, July 1, 2014	$	(13	)	$	873		$	(120	)	$	740
Total gains and (losses), realized/unrealized included in cost of goods sold	(12		)	(39		)	1			(50		)
Purchases	(8		)	254			(4		)	242
Sales	4			(943		)	—			(939		)
Issuances	20			—			(7		)	13
Settlements	(47		)	—			84			37
Transfers into Level 3	27			171			(3		)	195
Transfers out of Level 3	5			(6		)	(11		)	(12		)

Balance, September 30, 2014	$	(24	)	$	310		$	(60	)	$	226

(1)

Derivatives, net include Level 3 derivative assets and liabilities.

(2)

Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

	Level 3 Instruments
	Fair Value Measurements
	Nine Months Ended September 30, 2015
				Readily			Trade Accounts
	Derivatives,			Marketable			Receivable/
(US$ in millions)	Net (1)			Inventories			Payable, Net(2)			Total
Balance, January 1, 2015	$	(2	)	$	255		$	(33	)	$	220
Total gains and (losses) realized/unrealized included in cost of goods sold	460			167			(17		)	610
Purchases	1			1,197			(5		)	1,193
Sales	—			(1,442		)	—			(1,442		)
Issuances	—			—			(328		)	(328		)
Settlements	(139		)	—			466			327
Transfers into Level 3	—			683			(203		)	480
Transfers out of Level 3	(3		)	(249		)	(46		)	(298		)

Balance, September 30, 2015	$	317		$	611		$	(166	)	$	762

(1)

Derivatives, net include Level 3 derivative assets and liabilities.

(2)

Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

	Level 3 Instruments
	Fair Value Measurements
	Nine Months Ended September 30, 2014
				Readily			Trade Accounts
	Derivatives,			Marketable			Receivable/
(US$ in millions)	Net (1)			Inventories			Payable, Net (2)			Total
Balance, January 1, 2014	$	20		$	298		$	(75	)	$	243
Total gains and (losses) realized/unrealized included in cost of goods sold	65			8			2			75
Purchases	5			1,804			(5		)	1,804
Sales	—			(2,176		)	8			(2,168		)
Issuances	19			—			(400		)	(381		)
Settlements	(189		)	—			492			303
Transfers into Level 3	21			534			(11		)	544
Transfers out of Level 3	35			(158		)	(71		)	(194		)

Balance, September 30, 2014	$	(24	)	$	310		$	(60	)	$	226

(1)

Derivatives, net include Level 3 derivative assets and liabilities.

(2)

Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

The tables below summarize changes in unrealized gains or (losses) recorded in earnings during the three and nine months ended September 30, 2015 and 2014 for Level 3 assets and liabilities that were held at September 30, 2015 and 2014:

	Level 3 Instruments
	Fair Value Measurements
	Three Months Ended
				Readily			Trade Accounts
	Derivatives,			Marketable			Receivable and
(US$ in millions)	Net (1)			Inventories			Payable, Net(2)			Total
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2015
Cost of goods sold	$	(35	)	$	24		$	(20	)	$	(31	)



Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2014
Cost of goods sold	$	(7	)	$	(19	)	$	1		$	(25	)

(1)

Derivatives, net include Level 3 derivative assets and liabilities.

(2)

Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

	Level 3 Instruments
	Fair Value Measurements
	Nine Months Ended
			Readily			Trade Accounts
	Derivatives,		Marketable			Receivable and
(US$ in millions)	Net (1)		Inventories			Payable, Net(2)			Total
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2015
Cost of goods sold	$	18	$	15		$	(2	)	$	31


Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2014
Cost of goods sold	$	48	$	(43	)	$	4		$	9

(1)

Derivatives, net include Level 3 derivative assets and liabilities.

(2)

Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.

Derivative Instruments

Interest rate derivatives - Bunge from time-to-time uses interest rate derivatives, including interest rate swaps, interest rate basis swaps, interest rate options or interest rate futures. Interest rate derivatives used by Bunge as hedging instruments are recorded at fair value in the consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. Certain of these interest rate derivative agreements may be 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 may enter into interest rate derivatives agreements for the purpose of managing certain of its interest rate exposures. Bunge may also enter into interest rate derivatives agreements that do not qualify as hedges for accounting purposes. Changes in fair value of such interest rate basis derivatives agreements are recorded in earnings.

Foreign exchange derivatives - Bunge uses a combination of foreign exchange forward, futures, swap 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, 2015
	Exchange Traded
	Net (Short)		Non-exchange Traded					Unit of
(US$ in millions)	& Long (1)		(Short) (2)			Long (2)		Measure
Foreign Exchange
Options	$	—	$	(210	)	$	238	Delta
Forwards	—		(17,003		)	11,661		Notional
Futures	4		—			—		Notional
Swaps	—		(462		)	52		Notional

(1)

Exchange traded derivatives are presented on a net (short) and long position basis.

(2)

Non-exchange traded derivatives are presented on a gross (short) and long position basis.

Commodity derivatives - Bunge uses commodity 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. 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. 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.

The table below summarizes the volumes of open agricultural commodities derivative positions.

	September 30, 2015
	Exchange Traded
	Net (Short) &		Non-exchange Traded			Unit of
	Long (1)		(Short) (2)		Long (2)	Measure
Agricultural Commodities
Futures	(6,944,106	)	—		—	Metric Tons
Options	20,795		—		—	Metric Tons
Forwards	—		(33,887,711	)	31,573,017	Metric Tons
Swaps	—		(1,180,877	)	2,249,354	Metric Tons

(1)

Exchange traded derivatives are presented on a net (short) and long position basis.

(2)

Non-exchange traded derivatives are presented on a gross (short) and long position basis.

Ocean freight derivatives — Bunge uses derivative instruments referred to as freight forward agreements (FFAs) and FFA options to hedge portions of its current and anticipated ocean freight costs. Changes in the fair values of ocean freight derivatives that are not designated as hedges are recorded in earnings. There were no designated hedges at September 30, 2015 and December 31, 2014, respectively.

The table below summarizes the open ocean freight positions.

	September 30, 2015
	Exchange Cleared
	Net (Short) &		Non-exchange Cleared		Unit of
	Long (1)		(Short) (2)	Long (2)	Measure
Ocean Freight
FFA	(45	)	—	—	Hire Days
FFA Options	(76	)	—	—	Hire Days

(1)

Exchange cleared derivatives are presented on a net (short) and long position basis.

(2)

Non-exchange cleared derivatives are presented on a gross (short) and long position basis.

Energy derivatives — Bunge uses energy 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. Bunge has entered into Emissions Reduction Purchase Agreement (ERPA) contracts which are commitments to purchase Carbon Emissions Reduction Credits (CER’s) when these credits are delivered at future dates.

The table below summarizes the open energy positions.

	September 30, 2015
	Exchange Traded
	Net (Short) &		Non-exchange Cleared		Unit of
	Long (1)		(Short) (2)	Long (2)	Measure (3)
Natural Gas (3)
Futures	6,560,000		—	—	MMBtus
Swaps	—		—	796,209	MMBtus
Options	—		—	—	MMBtus

Energy—Other
Futures	(1,624,372	)	—	—	Metric Tons
Forwards	—		—	7,108,552	Metric Tons
Swaps	154,300		—	—	Metric Tons
Options	—		—	—	Metric Tons

(1)

Exchange traded and cleared derivatives are presented on a net (short) and long position basis.

(2)

Non-exchange cleared derivatives are presented on a gross (short) and long position basis.

(3)

Million British Thermal Units (MMBtus) is the standard unit of measurement used to denote an 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 for the nine months ended September 30, 2015 and 2014.

		Gain or (Loss) Recognized in
		Income on Derivative Instruments
		Nine Months Ended September 30,
(US$ in millions)	Location	2015			2014
Undesignated Derivative Contracts:
Interest Rate	Other income (expense) - net	$	(1	)	$	—
Foreign Exchange	Foreign exchange gains (losses)	(356		)	28
Foreign Exchange	Cost of goods sold	(814		)	113
Commodities	Cost of goods sold	1,086			383
Freight	Cost of goods sold	10			(1		)
Energy	Cost of goods sold	(9		)	(15		)

Total		$	(84	)	$	508

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, 2015.

	Nine Months Ended September 30, 2015
			Gain or			Gain or (Loss)
			(Loss)			Reclassified from
			Recognized in			Accumulated OCI into				Gain or (Loss) Recognized
	Notional		Accumulated			Income (1)				in Income on Derivatives
(US$ in millions)	Amount		OCI (1)			Location	Amount			Location	Amount (2)

Cash Flow Hedge:
Foreign Exchange (3)	$	290	$	(89	)	Foreign exchange gains (losses)	$	(51	)	Foreign exchange gains (losses)	$	—

Total	$	290	$	(89	)		$	(51	)		$	—


Net Investment Hedge:
Foreign Exchange (3)	$	1,685	$	235		Foreign exchange gains (losses)	$	—		Foreign exchange gains (losses)	$	—

Total	$	1,685	$	235			$	—			$	—

(1)

The gain (loss) recognized relates to the effective portion of the hedging relationship. At September 30, 2015, Bunge expects to reclassify into income in the next 12 months approximately ($41) million of after-tax gain (loss) related to its foreign exchange cash flow hedges.

(2)

There was no gain or loss recognized in income relating to the ineffective portion of the hedging relationships or relating to amounts excluded from the assessment of hedge effectiveness.

(3)

The foreign exchange contracts mature at various dates in 2015 through 2020.

	Nine Months Ended September 30, 2014
			Gain or			Gain or (Loss)
			(Loss)			Reclassified from
			Recognized in			Accumulated OCI into			Gain or (Loss) Recognized
	Notional		Accumulated			Income (1)			in Income on Derivatives
(US$ in millions)	Amount		OCI (1)			Location	Amount		Location	Amount (2)

Cash Flow Hedge:
Foreign Exchange (3)	$	148	$	19		Foreign exchange gains (losses)	$	11	Foreign exchange gains (losses)	$	—

Total	$	148	$	19			$	11		$	—


Net Investment Hedge:
Foreign Exchange (3)	$	557	$	(7	)	Foreign exchange gains (losses)	$	—	Foreign exchange gains (losses)	$	—

Total	$	557	$	(7	)		$	—		$	—

(1)

The gain or (loss) recognized relates to the effective portion of the hedging relationship. At September 30, 2014, Bunge expected to reclassify into income in the next 12 months approximately $19 million of after-tax gains (losses) related to its foreign exchange cash flow hedges.

(2)

There was no gain or loss recognized in income relating to the ineffective portion of the hedging relationships or to amounts excluded from the assessment of hedge effectiveness.

(3)

The foreign exchange contracts matured at various dates in 2014 and 2015.