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, Note 8 for long-term receivables from farmers in Brazil, net and other long-term investments and Note 12 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, 2017								December 31, 2016
(US$ in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Readily marketable inventories (Note 6)	$	—	$	4,133	$	569	$	4,702	$	—	$	3,618	$	237	$	3,855
Trade accounts receivable ⁽¹⁾	—		6		—		6		—		6		—		6
Unrealized gain on designated derivative contracts⁽²⁾:
Interest rate	—		—		—		—		—		1		—		1
Foreign exchange	—		25		—		25		—		29		—		29
Unrealized gain on undesignated derivative contracts ^(2):
Interest rate	—		—		—		—		—		1		—		1
Foreign exchange	—		416		—		416		—		312		—		312
Commodities	107		406		19		532		421		431		96		948
Freight	25		—		6		31		16		—		—		16
Energy	20		—		—		20		23		1		—		24
Deferred purchase price receivable (Note 13 )	—		123		—		123		—		87		—		87
Other ⁽³⁾	14		684		—		698		18		108		—		126
Total assets	$	166	$	5,793	$	594	$	6,553	$	478	$	4,594	$	333	$	5,405
Liabilities:
Trade accounts payable ⁽¹⁾	$	—	$	676	$	249	$	925	$	—	$	478	$	44	$	522
Unrealized loss on designated derivative contracts ^(4):
Interest rate	—		20		—		20		—		18		—		18
Unrealized loss on undesignated derivative contracts ^(4):
Interest rate	—		1		—		1		—		—		—		—
Foreign exchange	—		419		—		419		—		233		—		233
Commodities	141		432		20		593		356		444		144		944
Freight	19		—		5		24		14		—		1		15
Energy	14		—		3		17		9		—		2		11
Total liabilities	$	174	$	1,548	$	277	$	1,999	$	379	$	1,173	$	191	$	1,743

(1)

Trade accounts receivable and payable are generally stated at historical amounts, net of write-offs and allowances, with the exception of $6 million and $925 million, respectively, at September 30, 2017 and $6 million and $522 million, respectively, at December 31, 2016, related to certain delivered inventory for which the receivable and payable 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 nil and $5 million included in other non-current assets at September 30, 2017 and December 31, 2016, 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 $20 million and $18 million included in other non-current liabilities at September 30, 2017 and December 31, 2016, respectively.

Derivatives — Exchange traded futures and options contracts and exchange cleared 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 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. 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 — RMI 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 RMI 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 RMI at fair value in the condensed consolidated balance sheets and condensed 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 derivative counterparties at September 30, 2017 and December 31, 2016, respectively.

Level 3 Readily marketable inventories 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, 2017 and 2016. These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.



	Three Months Ended September 30, 2017
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, July 1, 2017	$	—		$	623		$	(453	)	$	170
Total gains and (losses), realized/unrealized included in cost of goods sold	(4		)	23			(2		)	17
Purchases	3			233			(5		)	231
Sales	—			(443		)	—			(443		)
Issuances	(3		)	—			—			(3		)
Settlements	(1		)	—			214			213
Transfers into Level 3	(1		)	162			(4		)	157
Transfers out of Level 3	3			(29		)	1			(25		)
Balance, September 30, 2017	$	(3	)	$	569		$	(249	)	$	317



	Three Months Ended September 30, 2016
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, July 1, 2016	$	127		$	917		$	(188	)	$	856
Total gains and (losses), realized/unrealized included in cost of goods sold	(120		)	12			7			(101		)
Purchases	—			171			(8		)	163
Sales	—			(517		)	—			(517		)
Issuances	—			—			—			—
Settlements	(37		)	—			95			58
Transfers into Level 3	(5		)	208			—			203
Transfers out of Level 3	(1		)	(499		)	51			(449		)
Balance, September 30, 2016	$	(36	)	$	292		$	(43	)	$	213



	Nine Months Ended September 30, 2017
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, January 1, 2017	$	(51	)	$	237		$	(44	)	$	142
Total gains and losses (realized/unrealized) included in cost of goods sold	(36		)	95			9			68
Purchases	8			1,376			(460		)	924
Sales	—			(1,472		)	—			(1,472		)
Issuances	(8		)	—			—			(8		)
Settlements	70			—			305			375
Transfers into Level 3	(8		)	503			(59		)	436
Transfers out of Level 3	22			(170		)	—			(148		)
Balance, September 30, 2017	$	(3	)	$	569		$	(249	)	$	317



	Nine Months Ended September 30, 2016
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, January 1, 2016	$	167		$	245		$	(44	)	$	368
Total gains and losses (realized/unrealized) included in cost of goods sold	(87		)	143			15			71
Purchases	—			904			(220		)	684
Sales	—			(1,022		)	—			(1,022		)
Issuances	(1		)	—			—			(1		)
Settlements	(110		)	—			195			85
Transfers into Level 3	(7		)	569			(59		)	503
Transfers out of Level 3	2			(547		)	70			(475		)
Balance, September 30, 2016	$	(36	)	$	292		$	(43	)	$	213

The tables below summarize changes in unrealized gains or (losses) recorded in earnings during the three and nine months ended September 30, 2017 and 2016 for Level 3 assets and liabilities that were held at September 30, 2017 and 2016.



	Three Months Ended
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable and Payable, Net			Total
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2017
Cost of goods sold	$	(2	)	$	11		$	(3	)	$	6
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2016
Cost of goods sold	$	(127	)	$	(12	)	$	2		$	(137	)



	Nine Months Ended
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable and Payable, Net		Total
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2017
Cost of goods sold	$	(6	)	$	(19	)	$	3	$	(22	)
Changes in unrealized gains and (losses) relating to assets and liabilities held at September 30, 2016
Cost of goods sold	$	9		$	(26	)	$	1	$	(16	)

Derivative Instruments

Interest rate derivatives — Bunge may use various interest rate derivatives for the purpose of managing certain of its interest rate exposures. The 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 in earnings. Additionally, the carrying amount of the associated hedged debt is adjusted through earnings for changes in the fair value arising from changes in benchmark interest rates. No ineffectiveness is recognized on the hedging relationships, as they have been determined to be perfectly effective.

As of September 30, 2017, Bunge had several fixed-to-variable interest rate swap agreements that were designated as fair value hedges. Below is a summary of Bunge’s current interest rate swap agreements designated as fair value hedging instruments as of September 30, 2017.



Notional Amount of Hedged Obligation		Notional Amount of Derivative		Maturity Date	Payment Weighted Average Rate Payable	Fixed Rate Receivable
$	500	$	500	November 24, 2020	3 month LIBOR plus 1.91%	3.50	%
€	800	€	800	June 16, 2023	6 month EURIBOR plus 1.64%	1.85	%
$	550	$	550	August 15, 2026	3 month LIBOR plus 1.12%	3.25	%

Bunge may also enter into various interest rate derivatives that do not qualify for hedge accounting and, therefore, Bunge has not designated these as hedging instruments for accounting purposes. These interest rate derivatives have been recorded at fair value in the condensed consolidated balance sheets with changes in fair value recorded in earnings. Below is a summary of Bunge's outstanding interest rate derivatives that do not qualify for hedge accounting.



	September 30, 2017
	Exchange Traded
	Net (Short)	Non-exchange Traded			Unit of
(US$ in millions)	& Long	(Short)		Long	Measure
Interest Rate
Swaps	—	(1,574	)	—	Notional
Forward Rate Agreements	—	(800	)	—	Notional

Foreign exchange derivatives and hedging activities - Bunge may use a combination of various foreign exchange derivatives 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 investments in certain of its foreign subsidiaries.

Foreign exchange risk is also managed through the use of foreign currency debt. Bunge has 800 million euro senior unsecured euro-denominated notes of which 697 million euro is designated and is effective as a net investment hedge of euro-denominated assets. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within other comprehensive income (loss) ("OCI").

Bunge assesses, both at the inception of the hedge relationship and on an ongoing basis, whether the derivatives that are used in hedge transactions are highly effective in offsetting changes in the hedged items. No ineffectiveness is recognized on the hedging relationships that have been determined to be perfectly effective.

The table below summarizes the notional amounts of open foreign exchange positions.



	September 30, 2017
	Exchange Traded
	Net (Short)			Non-exchange Traded					Unit of
(US$ in millions)	& Long			(Short)			Long		Measure
Foreign Exchange
Options	$	—		$	(368	)	$	430	Delta
Forwards	—			(10,824		)	10,548		Notional
Futures	(10		)						Notional
Swaps	—			(552		)	593		Notional

Commodity derivatives - Bunge uses various 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 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 its commodity contracts as accounting 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 commodity derivative contracts.



	September 30, 2017
	Exchange Traded
	Net (Short)	Non-exchange Traded			Unit of
	& Long	(Short)		Long	Measure
Agricultural Commodities
Futures	2,244,228	—		—	Metric Tons
Options	63,027	—		—	Metric Tons
Forwards	—	(31,604,107	)	22,381,787	Metric Tons
Swaps	—	(6,483,877	)	300,458	Metric Tons

Ocean freight derivatives — Bunge may use derivative instruments referred to as freight forward agreements ("FFA") 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 accounting hedges at September 30, 2017 and December 31, 2016.

The table below summarizes the open ocean freight positions.



	September 30, 2017
	Exchange Cleared
	Net (Short)		Non-exchange Cleared		Unit of
	& Long		(Short)	Long	Measure
Ocean Freight
FFA	(2,098	)	—	—	Hire Days
FFA Options	315		—	—	Hire Days

Energy derivatives — Bunge may use various energy derivative instruments to manage its exposure to volatility in energy costs. Energy costs incurred in Bunge's operations include electricity, natural gas, coal, and fuel oil, including bunker fuel.

The table below summarizes the open energy positions.



	September 30, 2017
	Exchange Traded / Cleared
	Net (Short)	Non-exchange Traded		Unit of
	& Long	(Short)	Long	Measure (1)
Natural Gas
Futures	4,553,161	—	—	MMBtus
Swaps	—	—	635,687	MMBtus
Energy—Other
Futures	351,786	—	—	Metric Tons
Forwards	—	—	6,048,869	Metric Tons
Swaps	227,600	—	—	Metric Tons


(1)	Million British Thermal Units ("MMBtus") are standard units of measurement used to denote an amount of natural gas.

The Effect of Financial Instruments on the Condensed Consolidated Statements of Income

The table below summarizes the net effect of derivative instruments that are designated as fair value hedges and the related hedged items, and also derivative instruments that are undesignated on the condensed consolidated statements of income for the nine months ended September 30, 2017 and 2016.



		Gain or (Loss) Recognized in Income on Derivative Instruments
		Nine Months Ended September 30,
(US$ in millions)	Location	2017			2016
Designated Derivative Contracts:
Interest Rate	Interest expense	$	11		$	3
Total		$	11		$	3
Undesignated Derivative Contracts:
Interest Rate	Interest income (expense)	$	—		$	(4	)
Foreign Exchange	Foreign exchange gains (losses)	82			262
Foreign Exchange	Cost of goods sold	62			646
Commodities	Cost of goods sold	514			(531		)
Freight	Cost of goods sold	4			(1		)
Energy	Cost of goods sold	(6		)	12
Total		$	656		$	384

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, 2017.



	Nine Months Ended September 30, 2017
	Notional		Gain or (Loss) Recognized in Accumulated			Gain or (Loss) Reclassified from Accumulated OCI into Income (1)			Gain or (Loss) Recognized in Income on Derivatives
(US$ in millions)	Amount		OCI (1)			Location	Amount		Location	Amount (2)
Cash Flow Hedge:
Foreign exchange ⁽³⁾	$	339	$	15		Foreign exchange gains (losses)	$	27	Foreign exchange gains (losses)	$	—
Total	$	339	$	15			$	27		$	—

Net Investment Hedge:
Foreign currency denominated debt (4)	$	786	$	(101	)	Foreign currency denominated debt	$	—	Foreign currency denominated debt	$	—
Foreign exchange ⁽³⁾	516		(21		)	Foreign exchange gains (losses)	—		Foreign exchange gains (losses)	—
Total	$	1,302	$	(122	)		$	—		$	—


(1)	The gain (loss) recognized in OCI relates to the effective portion of the hedging relationship. At September 30, 2017, Bunge expects to reclassify into income in the next 12 months the full $15 million of after-tax gain (loss) related to its foreign exchange cash flow hedges and nil for net investment 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 through June 2018.


(4)	The euro-denominated loans mature in 2023.



	Nine Months Ended September 30, 2016
	Notional		Gain or (Loss) Recognized in Accumulated			Gain or (Loss) Reclassified from Accumulated OCI into Income (1)			Gain or (Loss) Recognized in Income on Derivatives
(US$ in millions)	Amount		OCI (1)			Location	Amount		Location	Amount (2)
Cash Flow Hedge:
Foreign exchange (3)	$	166	$	43		Foreign exchange gains (losses)	$	13	Foreign exchange gains (losses)	$	—
Total	$	166	$	43			$	13		$	—

Net Investment Hedge:
Foreign currency denominated debt (4)	$	663	$	1		Foreign currency denominated debt	$	—	Foreign currency denominated debt	$	—
Foreign exchange (3)	653		(384		)	Foreign exchange gains (losses)	—		Foreign exchange gains (losses)	—
Total	$	1,316	$	(383	)		$	—		$	—


(1)	The gain or (loss) recognized in OCI relates to the effective portion of the hedging relationship. At September 30, 2016, Bunge expected to reclassify into income in the next 12 months approximately $31 million of after-tax gains (losses) related to its foreign exchange cash flow hedges and nil for net investment 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 through 2018.


(4)	The euro-denominated loans mature in 2023.