Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Generally accepted accounting principles define fair value as an exit price and also establish a framework for measuring fair value. An exit price represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy is used, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;

• Level 2 inputs: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and

• Level 3 inputs: Unobservable inputs (e.g., a reporting entity's own data).

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 significant input determines the placement of the entire fair value measurement in the hierarchy.

The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis at December 31, 2012 and 2011:

(in thousands)	December 31, 2012
Assets (liabilities)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	78,674	$	—		$	—	$	78,674
Restricted cash	398		—			—		398
Commodity derivatives, net	46,966		23,634			—		70,600
Convertible preferred securities (b)	—		—			17,200		17,200
Other assets and liabilities (a)	7,813		(2,109		)	—		5,704
Total	$	133,851	$	21,525		$	17,200	$	172,576

(in thousands)	December 31, 2011
Assets (liabilities)	Level 1		Level 2		Level 3			Total
Cash equivalents	$	183	$	—	$	—		$	183
Restricted cash	18,651		—		—			18,651
Commodity derivatives, net	43,503		22,876		2,467			68,846
Convertible preferred securities (b)	—		—		20,360			20,360
Other assets and liabilities (a)	6,224		—		(2,178		)	4,046
Total	$	68,561	$	22,876	$	20,649		$	112,086

(a) Included in other assets and liabilities is interest rate and foreign currency derivatives, swaptions and deferred compensation assets.

(b) Recorded in “Other noncurrent assets” on the Company’s Consolidated Balance Sheets

Level 1 commodity derivatives reflect the fair value of the exchanged-traded futures and options contracts that the Company holds, net of the cash collateral that the Company has in its margin account.

A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:

	2012									2011
(in thousands)	Interest rate derivatives and swaptions			Convertible preferred securities			Commodity derivatives, net			Interest rate derivatives and swaptions			Convertible preferred securities		Commodity derivatives, net
Asset (liability) at December 31,	$	(2,178	)	$	20,360		$	2,467		$	(2,156	)	$	15,790	$	12,406
Gains (losses) included in earnings:
New contracts	—			—			—			—			—		(48		)
Change in market prices	—			—			—			(560		)	—		(5,886		)
Settled contracts	—			—			—			—			—		(3,175		)
Unrealized gains (losses) included in other comprehensive income	—			(3,140		)	—			(62		)	4,570		—
New contracts entered into	—			—			—			600			—		—
Transfers to level 2	2,178			—			(2,467		)	—			—		(1,234		)
Transfers from level 2	—			—			—			—			—		404
Asset (liability) at December 31,	$	—		$	17,220		$	—		$	(2,178	)	$	20,360	$	2,467

In accordance with ASU 2011-04, the following table summarizes information about the Company's Level 3 fair value measurements as of December 31, 2012:

Quantitative Information about Level 3 Fair Value Measurements
					Range
(in thousands)	Fair Value as of 12/31/12		Valuation Method	Unobservable Input	Low		High		Weighted Average
Convertible Preferred Securities	$	16,720	Market Approach	EBITDA Multiples	5.50x		7.00x		6.60x
			Income Approach	Discount Rate	17.5	%	17.5	%	17.5	%

The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices on the CME or the New York Mercantile Exchange for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the Agribusiness industry, we have concluded that “basis” is a “Level 2” fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for the majority of these commodity contracts.

The Company’s convertible preferred securities are measured at fair value using a combination of the income approach on a quarterly basis and the market approach on an annual basis. Specifically, the income approach incorporates the use of the Discounted Cash Flow method, whereas the Market Approach incorporates the use of the Guideline Public Company method. Application of the Discounted Cash Flow method requires estimating the annual cash flows that the business enterprise is expected to generate in the future. The assumptions input into this method are estimated annual cash flows for a specified estimation period, the discount rate, and the terminal value at the end of the estimation period. In the Guideline Public Company method, valuation multiples, including total invested capital, are calculated based on financial statements and stock price data from selected guideline publicly traded companies. On an annual basis, a comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.

Fair Value of Financial Instruments

Certain long-term notes payable and the Company’s debenture bonds bear fixed rates of interest and terms of up to 15 years. Based upon the Company’s credit standing and current interest rates offered by the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities, the Company estimates the fair values of its long-term debt instruments outstanding at December 31, 2012 and 2011, as follows:

(in thousands)	Carrying Amount		Fair Value		Fair Value Hierarchy Level
2012:
Fixed rate long-term notes payable	$	263,745	$	279,505	Level 2
Long-term notes payable, non-recourse	785		800		Level 2
Debenture bonds	35,411		37,135		Level 1
	$	299,941	$	317,440
2011:
Fixed rate long-term notes payable	$	179,160	$	186,918	Level 2
Long-term notes payable, non-recourse	954		966		Level 2
Debenture bonds	29,483		30,666		Level 1
	$	209,597	$	218,550

The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.