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 5 for trade structured finance program, Note 13 for deferred purchase price receivable 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.

Fair value is the expected price that would be received for an asset or paid to transfer a liability (an exit price) in the 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, 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 fair value 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. Bunge believes a change in these inputs would not result in a significant change in the fair values.

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
	June 30, 2018								December 31, 2017
(US$ in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Readily marketable inventories (Note 6)	$	—	$	4,306	$	1,225	$	5,531	$	—	$	3,691	$	365	$	4,056
Trade accounts receivable ⁽¹⁾	—		8		—		8		—		5		—		5
Unrealized gain on designated derivative contracts⁽²⁾:
Interest rate	—		—		—		—		—		—		—		—
Foreign exchange	—		169		—		169		—		18		—		18
Unrealized gain on undesignated derivative contracts ^(2):
Interest rate	—		4		—		4		—		4		—		4
Foreign exchange	2		529		—		531		—		321		—		321
Commodities	128		670		39		837		115		389		19		523
Freight	15		—		16		31		18		—		8		26
Energy	29		1		—		30		18		—		—		18
Deferred purchase price receivable (Note 13 )	—		118		—		118		—		107		—		107
Other ⁽³⁾	22		313		—		335		15		234		—		249
Total assets	$	196	$	6,118	$	1,280	$	7,594	$	166	$	4,769	$	392	$	5,327
Liabilities:
Trade accounts payable ⁽¹⁾	$	—	$	309	$	265	$	574	$	—	$	467	$	116	$	583
Unrealized loss on designated derivative contracts ^(4):
Interest rate	—		56		—		56		—		31		—		31
Foreign exchange	—		43		—		43		—		2		—		2
Unrealized loss on undesignated derivative contracts ^(4):
Interest rate	—		1		—		1		—		1		—		1
Foreign exchange	2		761		—		763		1		430		—		431
Commodities	189		634		26		849		141		271		20		432
Freight	33		—		11		44		15		—		3		18
Energy	4		1		2		7		9		2		2		13
Total liabilities	$	228	$	1,805	$	304	$	2,337	$	166	$	1,204	$	141	$	1,511


(1)	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.


(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 $68 million and $31 million included in other non-current liabilities at June 30, 2018 and December 31, 2017, 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 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.

OTC derivative contracts include swaps, options and structured transactions that are fair valued are 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—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 counterparties at June 30, 2018 or December 31, 2017.

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 to value freight, premiums and discounts in 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 months ended June 30, 2018 and 2017. These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.



	Three Months Ended June 30, 2018
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, April 1, 2018	$	5		$	860		$	(317	)	$	548
Total gains and (losses), realized/unrealized included in cost of goods sold	14			46			3			63
Purchases	1			532			(3		)	530
Sales	—			(267		)	—			(267		)
Issuances	—			—			—			—
Settlements	(1		)	—			110			109
Transfers into Level 3	(2		)	151			(76		)	73
Transfers out of Level 3	(1		)	(97		)	18			(80		)
Balance, June 30, 2018	$	16		$	1,225		$	(265	)	$	976

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, include gains/(losses) of $13 million, $(16) million and $0 million, respectively, that are attributable to the change in unrealized gains/(losses) relating to Level 3 assets and liabilities still held at June 30, 2018.



	Three Months Ended June 30, 2017
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, April 1, 2017	$	(72	)	$	743		$	(372	)	$	299
Total gains and (losses), realized/unrealized included in cost of goods sold	27			86			4			117
Purchases	1			380			(125		)	256
Sales	—			(658		)	—			(658		)
Issuances	(3		)	—			—			(3		)
Settlements	54			—			91			145
Transfers into Level 3	(3		)	157			(51		)	103
Transfers out of Level 3	(4		)	(85		)	—			(89		)
Balance, June 30, 2017	$	—		$	623		$	(453	)	$	170

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, includes gains/(losses) of $5 million, $22 million and $(1) million, respectively, that are attributable to the change in unrealized gains/(losses) relating to Level 3 assets and liabilities still held at June 30, 2017.



	Six Months Ended June 30, 2018
(US$ in millions)	Derivatives, Net			Readily Marketable Inventories			Trade Accounts Receivable/ Payable, Net			Total
Balance, January 1, 2018	$	2		$	365		$	(116	)	$	251
Total gains and losses (realized/unrealized) included in cost of goods sold	11			109			13			133
Purchases	10			1,145			(251		)	904
Sales	—			(546		)	—			(546		)
Issuances	(9		)	—			—			(9		)
Settlements	7			—			150			157
Transfers into Level 3	(4		)	275			(79		)	192
Transfers out of Level 3	(1		)	(123		)	18			(106		)
Balance, June 30, 2018	$	16		$	1,225		$	(265	)	$	976

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, include gains/(losses) of $1 million, $(19) million and $0 million, respectively, that are attributable to the change in unrealized gains/(losses) relating to Level 3 assets and liabilities still held at June 30, 2018.



	Six Months Ended June 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	(32		)	72			11			51
Purchases	5			1,144			(455		)	694
Sales	—			(1,030		)	—			(1,030		)
Issuances	(5		)	—			—			(5		)
Settlements	71			—			91			162
Transfers into Level 3	(7		)	341			(55		)	279
Transfers out of Level 3	19			(141		)	(1		)	(123		)
Balance, June 30, 2017	$	—		$	623		$	(453	)	$	170

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, includes gains/(losses) of $(9) million, $(9) million and $3 million, respectively, that are attributable to the change in unrealized gains/(losses) relating to Level 3 assets and liabilities still held at June 30, 2017.

Derivative Instruments and Hedging Activities

Hedge accounting derivatives - Bunge uses derivatives in qualifying hedge accounting relationships to manage certain of its interest rate and foreign currency risks. In executing these hedge strategies, Bunge primarily relies on the shortcut and critical terms match methods in designing its hedge accounting strategy, which results in little to no net earnings impact for these hedge relationships. Bunge monitors these relationships on a quarterly basis and will perform a quantitative analysis to validate the assertion that the hedges are highly effective if there are changes to the hedged item or hedging derivative.

Fair value hedges of interest rate risk - For certain long term debt that is issued at a fixed rate, Bunge enters into interest rate swaps to effectively convert the fixed interest rate to a variable interest rate. These swaps may be for the full term of the debt or for only a part of the term. As Bunge applies the shortcut method for all of its interest rate hedges on long term debt, the notional amount of the swap is equal to the amortized cost basis of the hedged debt. The net impact of hedge accounting for interest rate swaps is recognized in interest expense.

Fair value hedges of currency risk - For certain borrowings that are not in the functional currency of the reporting entity holding them, Bunge enters into cross currency swaps to convert the risk to the functional currency of the entity. The changes in currency risk on the derivative go to Foreign exchange gains (losses), whereas, the coupon on the swap goes to interest expense. Changes in basis risk are held in OCI until realized through the coupon.

Cash flow hedges of currency risk - Bunge manages currency risk on certain forecasted purchases and sales, and selling, general and administrative expenses with currency forwards. The change in the value of the forward is classified in accumulated other comprehensive income (loss) until the transaction affects earnings, at which time the change in value of the currency forward is reclassified to sales, cost of goods sold or selling, general and administrative expenses. These hedges mature at various times through June 2019. Of the amount currently in accumulated other comprehensive income (loss), $(2) million is expected to be reclassified to earnings in the next twelve months.

Net investment hedges - Bunge hedges the currency risk of certain of its foreign subsidiaries with currency forwards and intercompany loans for which the currency risk is remeasured through accumulated other comprehensive income (loss).

The table below provides information about the balance sheet values of hedged items and the notional amount of derivatives used in hedging strategies.



(US$ in millions)		June 30, 2018			December 31, 2017
Hedging instrument type:
Fair value hedges of interest rate risk
	Carrying value of hedged debt	$	2,217		$	2,071
	Cumulative adjustment to long-term debt from application of hedge accounting	$	(56	)	$	(31	)
	Interest rate swap - notional amount	$	2,283		$	2,109

Fair value hedges of currency risk
	Carrying value of hedged debt	$	311		$	—
	Cumulative adjustment to long-term debt from application of hedge accounting	$	—		$	—
	Cross currency swap - notional amount	$	(312	)	$	—

Cash flow hedges of currency risk
	Foreign currency forward - notional amount	$	164		$	237

Net investment hedges
	Foreign currency forward - notional amount	$	1,202		$	1,000
	Carrying value of non-derivative hedging instrument	$	929		$	725

In addition to using derivatives in qualifying hedge relationships, Bunge enters into derivatives to economically hedge its exposure to a variety of market risks it incurs in the normal course of operations.

Interest rate derivatives are used to hedge exposures to our financial instrument portfolios and debt issuances. The impact of changes in fair value of these instruments is presented in interest expense.

Currency derivatives are used to hedge the balance sheet and commercial exposures that arise from our global operations. The impact of changes in fair value of these instruments is presented in Cost of goods sold when hedging commercial exposures and Foreign currency gains (losses) when hedging monetary exposures.

Agricultural commodity derivatives are used to manage our inventory and forward purchase and sales contracts. 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 impact of changes in fair value of these instruments is presented in Cost of goods sold.

Bunge uses derivative instruments referred to as freight forward agreements ("FFA") and FFA options to hedge portions of its current and anticipated ocean freight costs. The impact of changes in fair value of these instruments is presented in Cost of goods sold.

Bunge uses energy derivative instruments to manage its exposure to volatility in energy costs. Hedges may be entered into for natural gas, electricity, coal and fuel oil, including bunker fuel. The impact of changes in fair value of these instruments is presented in Cost of goods sold.

The table below summarizes the volume of economic derivatives as of June 30, 2018 and 2017. For those contracts traded bilaterally through the over-the-counter markets (e.g., forwards, FRAs and swaps), the gross position is provided. For exchange traded (e.g., futures, FFAs and options) and cleared positions (e.g., energy swaps), the net position is provided.



	June 30,
	2018					2017					Unit of Measure
(US$ in millions)	Long		(Short)			Long		(Short)			Unit of Measure
Interest rate
Swaps	$	1,570	$	(729	)	$	710	$	(1,963	)	$ Notional
Futures	$	13	$	—		$	2	$	—		$ Notional
FRAs	$	487	$	(292	)	$	3,513	$	—		$ Notional
Currency
Forwards	$	13,721	$	(13,288	)	$	9,649	$	(10,204	)	$ Notional
Swaps	$	607	$	(217	)	$	1,082	$	(342	)	$ Notional
Futures	$	—	$	(25	)	$	—	$	(70	)	$ Notional
Options	$	909	$	(797	)	$	342	$	(698	)	Delta
Agricultural commodities
Forwards	34,658,009		(34,780,413		)	24,072,031		(31,421,931		)	Metric Tons
Swaps	655,487		(10,106,039		)	1,451,966		(3,621,709		)	Metric Tons
Futures	—		(412,498		)	765,000		—			Metric Tons
Options	1,999,710		(27,200		)	—		(300,894		)	Metric Tons
Ocean freight
FFA	—		(5,670		)	1,661		—			Hire Days
FFA options	1,006		—			212		—			Hire Days
Natural gas
Swaps	2,581,947		—			673,649		—			MMBtus
Futures	709,540		—			4,525,431		—			MMBtus
Energy - other
Forwards	5,536,524		—			6,048,869		—			Metric Tons
Futures	—		(10,798		)	16,086		—			Metric Tons
Swaps	262,400		—			249,400		—			Metric Tons

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

The tables below summarize the net effect of derivative instruments on the condensed consolidated statements of income for the three and six months ended June 30, 2018 and 2017.



		Gain (Loss) Recognized in Income on Derivative Instruments
		Three Months Ended June 30,
(US$ in millions)		2018			2017
Income statement classification	Type of derivative
Net sales
Hedge accounting	Foreign currency	$	(1	)	$	—

Cost of goods sold
Hedge accounting	Foreign currency	$	1		$	—
Economic hedges	Foreign currency	(379		)	(110		)
	Commodities	432			142
	Freight	(16		)	5
	Energy	23			(3		)
Total Cost of goods sold		$	61		$	34

Interest expense
Hedge accounting	Interest rate	$	(2	)	$	3

Foreign currency gains (losses)
Hedge accounting	Foreign currency	$	(15	)	$	—
Economic hedges	Foreign currency	(41		)	(55		)
Total Foreign currency gains (losses)		$	(56	)	$	(55	)

Other comprehensive income (loss)
Gains and losses on derivatives used as cash flow hedges of foreign currency risk included in other comprehensive income (loss) during the period		$	(7	)	$	(4	)
Gains and losses on derivatives used as net investment hedges included in other comprehensive income (loss) during the period		$	114		$	(2	)
Foreign currency gains and losses on intercompany loans used as net investment hedges included in other comprehensive income (loss) during the period		$	52		$	(58	)
Gains and losses on derivatives used as fair value hedges of foreign currency risk included in other comprehensive income (loss) during the period		$	—		$	—

Amounts released from accumulated other comprehensive income (loss) during the period
Cash flow hedge of foreign currency risk		$	(4	)	$	15



		Gain (Loss) Recognized in Income on Derivative Instruments
		Six Months Ended June 30,
(US$ in millions)		2018			2017
Income statement classification	Type of derivative
Net sales
Hedge accounting	Foreign currency	$	(1	)	$	—

Cost of goods sold
Hedge accounting	Foreign currency	$	1		$	—
Economic hedges	Foreign currency	(414		)	(18		)
	Commodities	172			412
	Freight	(21		)	(3		)
	Energy	21			(13		)
Total Cost of goods sold		$	(241	)	$	378

Interest expense
Hedge accounting	Interest rate	$	—		$	8

Foreign currency gains (losses)
Hedge accounting	Foreign currency	$	(12	)	$	—
Economic hedges	Foreign currency	(44		)	22
Total Foreign currency gains (losses)		$	(56	)	$	22

Other comprehensive income (loss)
Gains and losses on derivatives used as cash flow hedges of foreign currency risk included in other comprehensive income (loss) during the period		$	(5	)	$	1
Gains and losses on derivatives used as net investment hedges included in other comprehensive income (loss) during the period		$	133		$	(2	)
Foreign currency gains and losses on intercompany loans used as net investment hedges included in other comprehensive income (loss) during the period		$	35		$	(70	)
Gains and losses on derivatives used as fair value hedges of foreign currency risk included in other comprehensive income (loss) during the period		$	(1	)	$	—

Amounts released from accumulated other comprehensive income (loss) during the period
Cash flow hedge of foreign currency risk		$	(1	)	$	17