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Fair Value Measurements | 6 Months Ended
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Dec. 31, 2011
Fair Value Measurements |
Fair Value Measurements |
Note 4. | Fair Value Measurements
The Company determines the fair value of certain of its inventories of agricultural commodities, derivative contracts, and marketable securities based on the fair value definition and hierarchy levels established in the guidance of ASC Topic 820, Fair Value Measurements and Disclosures. Three levels are established within the 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, U.S. treasury securities and certain publicly traded equity securities. Level 2: Observable inputs, including Level 1 prices that have been 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 substantially 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, the Company generally classifies assets or liabilities as Level 3 when their fair value is determined using unobservable inputs that individually or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the assets or liabilities. Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. Level 3 amounts can include assets and liabilities whose value is determined using 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. In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of input that is a significant component of the fair value measurement determines the placement of the entire fair value measurement in the hierarchy. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment that may affect the classification of fair value assets and liabilities within the fair value hierarchy levels. The Company's policy regarding the timing of transfers between levels, including both transfers into and transfers out of Level 3, is to measure and record the transfers at the end of the reporting period. For the period ended December 31, 2011, the Company had no transfers between Levels 1 and 2. The following tables set forth, by level, the Company's assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2011 and June 30, 2011.
|  | Fair Value Measurements at December 31, 2011 |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
|  | (In millions) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Inventories carried at market |  | $ | – |  |  | $ | 4,798 |  |  | $ | 1,624 |  |  | $ | 6,422 |
Unrealized derivative gains: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  | 1,200 |  |  |  | 737 |  |  |  | 198 |  |  |  | 2,135 |
Foreign exchange contracts |  |  | – |  |  |  | 288 |  |  |  | – |  |  |  | 288 |
Marketable securities |  |  | 1,790 |  |  |  | 93 |  |  |  | – |  |  |  | 1,883 |
Total Assets |  | $ | 2,990 |  |  | $ | 5,916 |  |  | $ | 1,822 |  |  | $ | 10,728 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized derivative losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 1,295 |  |  | $ | 755 |  |  | $ | 192 |  |  | $ | 2,242 |
Foreign exchange contracts |  |  | – |  |  |  | 307 |  |  |  | – |  |  |  | 307 |
Inventory-related payables |  |  | – |  |  |  | 425 |  |  |  | 196 |  |  |  | 621 |
Total Liabilities |  | $ | 1,295 |  |  | $ | 1,487 |  |  | $ | 388 |  |  | $ | 3,170 |
|  | Fair Value Measurements at June 30, 2011 |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
|  | (In millions) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Inventories carried at market |  | $ | – |  |  | $ | 5,153 |  |  | $ | 762 |  |  | $ | 5,915 |
Unrealized derivative gains: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  | 1,198 |  |  |  | 1,457 |  |  |  | 112 |  |  |  | 2,767 |
Foreign exchange contracts |  |  | – |  |  |  | 237 |  |  |  | – |  |  |  | 237 |
Interest rate contracts |  |  | – |  |  |  | 3 |  |  |  | – |  |  |  | 3 |
Marketable securities |  |  | 1,628 |  |  |  | 328 |  |  |  | – |  |  |  | 1,956 |
Total Assets |  | $ | 2,826 |  |  | $ | 7,178 |  |  | $ | 874 |  |  | $ | 10,878 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized derivative losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 1,317 |  |  | $ | 1,193 |  |  | $ | 44 |  |  | $ | 2,554 |
Foreign exchange contracts |  |  | – |  |  |  | 178 |  |  |  | – |  |  |  | 178 |
Inventory-related payables |  |  | – |  |  |  | 278 |  |  |  | 45 |  |  |  | 323 |
Total Liabilities |  | $ | 1,317 |  |  | $ | 1,649 |  |  | $ | 89 |  |  | $ | 3,055 |
The Company uses the market approach valuation technique to measure the majority of its assets and liabilities carried at fair value. Estimated fair values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets, broker or dealer quotations or market transactions in either listed or over-the-counter (OTC) markets. In such cases, the inventory is classified in Level 2. Certain inventories may require management judgment or estimation for a significant component of the fair value amount. In such cases, the inventory is classified as Level 3. Changes in the fair value of inventories are recognized in the consolidated statements of earnings as a component of cost of products sold. The Company's derivative contracts that are measured at fair value include forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts, and OTC instruments related primarily to agricultural commodities, ocean freight, energy, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the Company's exchange-traded futures and options contracts are cash- settled on a daily basis and, therefore, are not included in the fair value tables. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets. When observable inputs are available for substantially the full term of the contract, it is classified in Level 2. When unobservable inputs have a significant impact on the measurement of fair value, the contract is classified in Level 3. Based on historical experience with the Company's suppliers and customers, the Company's own credit risk and knowledge of current market conditions, the Company does not view nonperformance risk to be a significant input to fair value for the majority of its forward commodity purchase and sale contracts. However, in certain cases, if the Company believes the nonperformance risk to be a significant input, the Company records estimated fair value adjustments, and classifies the contract in Level 3. Except for certain derivatives designated as cash flow hedges, changes in the fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products sold. Changes in the fair value of foreign currency-related derivatives are recognized in the consolidated statements of earnings as a component of net sales and other operating income, cost of products sold, and other (income) expense – net. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) (AOCI) until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur. The Company's marketable securities are comprised of U.S. Treasury securities, obligations of U.S. government agencies, corporate and municipal debt securities, and equity investments. U.S. Treasury securities and certain publicly traded equity investments are valued using quoted market prices and are classified in Level 1. U.S. government agency obligations, corporate and municipal debt securities and certain equity investments are valued using third-party pricing services and substantially all are classified in Level 2. Security values that are determined using pricing models are classified in Level 3. Unrealized changes in the fair value of available-for-sale marketable securities are recognized in the consolidated balance sheets as a component of AOCI unless a decline in value is deemed to be other-than-temporary at which point the decline is recorded in earnings. The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended December 31, 2011.
|  | Level 3 Fair Value Asset Measurements at December 31, 2011 |
|  | Inventories Carried at Market |  |  | Commodity Derivative Contracts Gains |  |  | Total Assets |
|  | (In millions) |
Balance, September 30, 2011 |  | $ | 1,348 |  |  | $ | 270 |  |  | $ | 1,618 |
Total increase (decrease) in unrealized gains included in cost of products sold |  |  | 28 |  |  |  | 138 |  |  |  | 166 |
Purchases |  |  | 959 |  |  |  | – |  |  |  | 959 |
Sales |  |  | (963 | ) |  |  | – |  |  |  | (963 | )
Settlements |  |  | – |  |  |  | (185 | ) |  |  | (185 | )
Transfers into Level 3 |  |  | 306 |  |  |  | 34 |  |  |  | 340 |
Transfers out of Level 3 |  |  | (54 | ) |  |  | (59 | ) |  |  | (113 | )
Ending balance, December 31, 2011 |  | $ | 1,624 |  |  | $ | 198 |  |  | $ | 1,822 |
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended December 31, 2011.
|  | Level 3 Fair Value Liability Measurements at December 31, 2011 |
|  | Inventory- related Payables |  |  | Commodity Derivative Contracts Losses |  |  | Total Liabilities |
|  | (In millions) |
Balance, September 30, 2011 |  | $ | 134 |  |  | $ | 244 |  |  | $ | 378 |
Total increase (decrease) in unrealized losses included in cost of products sold |  |  | 4 |  |  |  | 136 |  |  |  | 140 |
Purchases |  |  | 4 |  |  |  | – |  |  |  | 4 |
Sales |  |  | (6 | ) |  |  | – |  |  |  | (6 | )
Settlements |  |  | – |  |  |  | (158 | ) |  |  | (158 | )
Transfers into Level 3 |  |  | 60 |  |  |  | 4 |  |  |  | 64 |
Transfers out of Level 3 |  |  | – |  |  |  | (34 | ) |  |  | (34 | )
Ending balance, December 31, 2011 |  | $ | 196 |  |  | $ | 192 |  |  | $ | 388 |
The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended December 31, 2010.
|  | Level 3 Fair Value Measurements at December 31, 2010 |
|  | Inventories Carried at Market, Net |  |  | Commodity Derivative Contracts, Net |  |  | Total |
|  | (In millions) |
Balance, September 30, 2010 |  | $ | 371 |  |  | $ | 35 |  |  | $ | 406 |
Total gains (losses), realized or unrealized, included in earnings before income taxes* |  |  | (27 | ) |  |  | 62 |  |  |  | 35 |
Purchases, issuances and settlements |  |  | 43 |  |  |  | 1 |  |  |  | 44 |
Transfers into Level 3 |  |  | 2 |  |  |  | (1 | ) |  |  | 1 |
Transfers out of Level 3 |  |  | (83 | ) |  |  | (5 | ) |  |  | (88 | )
Ending balance, December 31, 2010 |  | $ | 306 |  |  | $ | 92 |  |  | $ | 398 |
*Includes gains of $122 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at December 31, 2010. The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended December 31, 2011.
|  | Level 3 Fair Value Asset Measurements at December 31, 2011 |
|  | Inventories Carried at Market |  |  | Commodity Derivative Contracts Gains |  |  | Total Assets |
|  | (In millions) |
Balance, June 30, 2011 |  | $ | 762 |  |  | $ | 112 |  |  | $ | 874 |
Total increase (decrease) in unrealized gains included in cost of products sold |  |  | (18 | ) |  |  | 335 |  |  |  | 317 |
Purchases |  |  | 1,095 |  |  |  | 4 |  |  |  | 1,099 |
Sales |  |  | (1,224 | ) |  |  | – |  |  |  | (1,224 | )
Settlements |  |  | – |  |  |  | (244 | ) |  |  | (244 | )
Transfers into Level 3 |  |  | 1,073 |  |  |  | 84 |  |  |  | 1,157 |
Transfers out of Level 3 |  |  | (64 | ) |  |  | (93 | ) |  |  | (157 | )
Ending balance, December 31, 2011 |  | $ | 1,624 |  |  | $ | 198 |  |  | $ | 1,822 |
The following table presents a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended December 31, 2011.
|  | Level 3 Fair Value Liability Measurements at December 31, 2011 |
|  | Inventory- related Payables |  |  | Commodity Derivative Contracts Losses |  |  | Total Liabilities |
|  | (In millions) |
Balance, June 30, 2011 |  | $ | 45 |  |  | $ | 44 |  |  | $ | 89 |
Total increase (decrease) in unrealized losses included in cost of products sold |  |  | 4 |  |  |  | 306 |  |  |  | 310 |
Purchases |  |  | (2 | ) |  |  | 1 |  |  |  | (1 | )
Sales |  |  | (4 | ) |  |  | – |  |  |  | (4 | )
Settlements |  |  | – |  |  |  | (139 | ) |  |  | (139 | )
Transfers into Level 3 |  |  | 153 |  |  |  | 19 |  |  |  | 172 |
Transfers out of Level 3 |  |  | – |  |  |  | (39 | ) |  |  | (39 | )
Ending balance, December 31, 2011 |  | $ | 196 |  |  | $ | 192 |  |  | $ | 388 |
The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended December 31, 2010.
|  | Level 3 Fair Value Measurements at December 31, 2010 |
|  | Inventories Carried at Market, Net |  |  | Derivative Contracts, Net |  |  | Total |
|  | (In millions) |
Balance, June 30, 2010 |  | $ | 427 |  |  | $ | 13 |  |  | $ | 440 |
Total gains (losses), realized or unrealized, included in earnings before income taxes* |  |  | 4 |  |  |  | 98 |  |  |  | 102 |
Purchases, issuances and settlements |  |  | 114 |  |  |  | 3 |  |  |  | 117 |
Transfers in to Level 3 |  |  | 8 |  |  |  | – |  |  |  | 8 |
Transfers out of Level 3 |  |  | (247 | ) |  |  | (22 | ) |  |  | (269 | )
Ending balance, December 31, 2010 |  | $ | 306 |  |  | $ | 92 |  |  | $ | 398 |
* Includes gains of $169 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at December 31, 2010. Transfers into Level 3 of assets and liabilities previously classified in Level 2 were due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts rising above the 10% threshold. Transfers out of Level 3 were primarily due to the relative value of unobservable inputs to the total fair value measurement of certain products and derivative contracts falling below the 10% threshold and thus permitting reclassification to Level 2.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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