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Fair Value Measurements
 6 Months Ended
Feb. 28, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

The following table presents assets and liabilities, included in our Consolidated Balance Sheets, that are recognized at fair value on a recurring basis, and indicates the fair value hierarchy utilized to determine such fair value. 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. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.

Fair value measurements at February 28, 2013, August 31, 2012 and February 29, 2012 are as follows:
 
February 28, 2013
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 

 
 

 
 
 
 

Readily marketable inventories


 
$
1,697,214

 

 
$
1,697,214

Commodity and freight derivatives
$
29,346

 
243,171

 

 
272,517

Interest rate swaps


 
459

 

 
459

Foreign currency derivatives
15,497

 


 

 
15,497

Other assets
79,333

 


 

 
79,333

Total Assets
$
124,176

 
$
1,940,844

 

 
$
2,065,020

Liabilities:
 

 
 

 
 
 
 

Commodity and freight derivatives
$
15,661

 
$
200,222

 

 
$
215,883

Interest rate swap derivatives


 
418

 

 
418

Foreign currency derivatives
969

 


 

 
969

Accrued liability for contingent
crack spread payments related
to purchase of noncontrolling
interests


 


 
$
140,987

 
140,987

Total Liabilities
$
16,630

 
$
200,640

 
$
140,987

 
$
358,257


 
August 31, 2012
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
Readily marketable inventories
 
 
$
1,702,757

 
 
 
$
1,702,757

Commodity and freight derivatives
$
70,586

 
778,362

 
 
 
848,948

Foreign currency derivatives
957

 
 
 
 
 
957

Other assets
75,000

 
 
 
 
 
75,000

Total Assets
$
146,543

 
$
2,481,119

 
 
 
$
2,627,662

Liabilities:
 
 
 
 
 
 
 
Commodity and freight derivatives
$
150,049

 
$
356,046

 
 
 
$
506,095

Interest rate swap derivatives
 
 
544

 
 
 
544

Foreign currency derivatives
2,366

 
 
 
 
 
2,366

Accrued liability for contingent
crack spread payments related
to purchase of noncontrolling
interests
 
 
 
 
$
127,516

 
127,516

Total Liabilities
$
152,415

 
$
356,590

 
$
127,516

 
$
636,521


 
February 29, 2012
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 

 
 

 
 
 
 

Readily marketable inventories


 
$
1,406,976

 

 
$
1,406,976

Commodity and freight derivatives
$
17,043

 
191,226

 

 
208,269

Other assets
74,537

 


 

 
74,537

Total Assets
$
91,580

 
$
1,598,202

 

 
$
1,689,782

Liabilities:
 

 
 

 
 
 
 

Commodity and freight derivatives
$
51,975

 
$
243,609

 
 
 
$
295,584

Interest rate swap derivatives
 
 
586

 
 
 
586

Foreign currency derivatives
72

 
 
 
 
 
72

Accrued liability for contingent
crack spread payments related
to purchase of noncontrolling
interests
 
 
 
 
$
101,003

 
101,003

Total Liabilities
$
52,047

 
$
244,195

 
$
101,003

 
$
397,245


Readily marketable inventories — Our readily marketable inventories primarily include grain, oilseed, and minimally processed soy-based inventories that are stated at fair values. These commodities are readily marketable, have quoted market prices and may be sold without significant additional processing. We estimate the fair market values of these inventories included in Level 2 primarily based on exchange quoted prices, adjusted for differences in local markets. Changes in the fair market values of these inventories are recognized in our Consolidated Statements of Operations as a component of cost of goods sold.
Commodity, freight and foreign currency derivatives — Exchange traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Our forward commodity purchase and sales contracts, flat price or basis fixed derivative contracts, ocean freight contracts and other OTC derivatives are determined using inputs that are generally based on exchange traded prices and/or recent market bids and offers, adjusted for location specific inputs, and are classified within Level 2. The location specific inputs are generally broker or dealer quotations, or market transactions in either the listed or OTC markets. Changes in the fair values of these contracts are recognized in our Consolidated Statements of Operations as a component of cost of goods sold.
Other assets — Our available-for-sale investments in common stock of other companies and Rabbi Trust assets are valued based on unadjusted quoted prices on active exchanges and are classified within Level 1. Changes in the fair values of these other assets are primarily recognized in our Consolidated Statements of Operations as a component of marketing, general and administrative expenses.
Interest rate swap derivatives — Fair values of our interest rate swap liabilities are determined utilizing valuation models that are widely accepted in the market to value such OTC derivative contracts. The specific terms of the contracts, as well as market observable inputs, such as interest rates and credit risk assumptions, are factored into the models. As all significant inputs are market observable, all interest rate swaps are classified within Level 2. Changes in the fair values of contracts not designated as hedging instruments for accounting purposes are recognized in our Consolidated Statements of Operations as a component of interest, net. Changes in the fair values of contracts designated as hedging instruments are deferred to accumulated other comprehensive loss in the equity section of our Consolidated Balance Sheets and are amortized into earnings within interest, net over the term of the agreements.
Accrued liability for contingent crack spread payment related to purchase of noncontrolling interests — The fair value of the accrued liability was calculated utilizing an average price option model, an adjusted Black-Scholes pricing model commonly used in the energy industry to value options. The model uses market observable inputs and unobservable inputs. Due to significant unobservable inputs used in the pricing model, the liability is classified within Level 3.
Quantitative Information about Level 3 Fair Value Measurements
 
 
 
 
 
 
Fair Value
Valuation
 
Range
Item
February 28, 2013
Technique
Unobservable Input
(Weighted Average)
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests
$
140,987

Adjusted Black Scholes option pricing model
Adjusted forward crack spread margin on February 28 (a)
$24.74-$39.23 (30.24)
 
 
 
Contractual target crack spread margin (b)
$17.50
 
 
 
Expected volatility (c)
71.36%
 
 
 
Own credit risk (d)
1.80-2.80% (2.42%)
 
 
 
Expected life (years) (e)
0.50-4.51 (2.90)
(a) Represents adjusted forward crack spread margin quotes and management estimates based on future settlement dates
(b) Represents the minimum contractual threshold that would require settlement with the counterparties
(c) Represents quarterly adjusted volatility estimates derived from daily historical market data
(d) Represents the range of company-specific risk adjustments commensurate with typical long-term borrowing rates available to us at measurement date
(e) Represents the range in the number of years remaining related to each contingent payment

Valuation processes for Level 3 measurements — Management is responsible for determining the fair value of our Level 3 financial instruments. Option pricing methods are utilized, as indicated above. Inputs used in the option pricing models are based on quotes obtained from third party vendors as well as management estimates for periods in which quotes cannot be obtained. Each reporting period, management reviews the unobservable inputs provided by third-party vendors for reasonableness utilizing relevant information available to us. Management also takes into consideration current and expected market trends and compares the liability’s fair value to hypothetical payments using known historical market data to assess reasonableness of the resulting fair value.
Sensitivity analysis of Level 3 measurements — The significant unobservable inputs that are susceptible to periodic fluctuations used in the fair value measurement of the accrued liability for contingent crack spread payments related to the purchase of noncontrolling interests are the adjusted forward crack spread margin and the expected volatility. Significant increases (decreases) in either of these inputs in isolation would result in a significantly higher (lower) fair value measurement. Although changes in the expected volatility are driven by fluctuations in the underlying crack spread margin, changes in expected volatility are not necessarily accompanied by a directionally similar change in the forward crack spread margin. Directional changes in the expected volatility can be affected by a multitude of factors including the magnitude of daily fluctuations in the underlying market data, market trends, timing of fluctuations, and other factors.
The following table represents a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended February 28, 2013 and February 29, 2012, respectively:

 
 
Level 3 Liabilities
 
 
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests
 
 
2013
 
2012
Balances, December 1, 2012 and 2011, respectively
 
$
170,621

 
$
105,188

Total (gains) losses included in cost of goods sold
 
(29,634
)
 
(4,185
)
Balances, February 28, 2013 and February 29, 2012, respectively
 
$
140,987

 
$
101,003



The following table represents a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the six months ended February 28, 2013 and February 29, 2012, respectively:

 
 
Level 3 Liabilities
 
 
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests
 
 
2013
 
2012
Balances, September 1, 2012 and 2011, respectively
 
$
127,516

 
$
—

Purchases
 
 
 
105,188

Total (gains) losses included in cost of goods sold
 
13,471

 
(4,185
)
Balances, February 28, 2013 and February 29, 2012, respectively
 
$
140,987

 
$
101,003



There were no significant transfers between Level 1, Level 2, and Level 3 assets and liabilities.