Fair Value Measurements

12 Months Ended

Dec. 31, 2013

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 upon the sale of 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, 2013 and 2012:

(in thousands)	December 31, 2013
Assets (liabilities)	Level 1		Level 2			Level 3		Total
Cash equivalents	$	97,751	$	—		$	—	$	97,751
Restricted cash	408		—			—		408
Commodity derivatives, net (a)	50,777		(49,810		)	—		967
Convertible preferred securities (b)	—		—			25,720		25,720
Other assets and liabilities (c)	10,143		(159		)	—		9,984
Total	$	159,079	$	(49,969	)	$	25,720	$	134,830

(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 (a)	46,966		23,634			—		70,600
Convertible preferred securities (b)	—		—			17,200		17,200
Other assets and liabilities (c)	7,813		(2,109		)	—		5,704
Total	$	133,851	$	21,525		$	17,200	$	172,576

(a) Includes associated cash posted/received as collateral

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

(c) Included in other assets and liabilities is interest rate and foreign currency derivatives, swaptions (Level 2) and deferred compensation assets (Level 1)

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.

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 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.

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

	2013		2012
(in thousands)	Convertible preferred securities		Interest rate derivatives and swaptions			Convertible preferred securities			Commodity derivatives, net
Asset (liability) at December 31,	$	17,220	$	(2,178	)	$	20,360		$	2,467
Gains (losses) included in earnings:
Unrealized gains (losses) included in other comprehensive income	8,500		—			(3,140		)	—
Transfers to level 2	—		2,178			—			(2,467		)
Asset (liability) at December 31,	$	25,720	$	—		$	17,220		$	—

The following table summarizes information about the Company's Level 3 fair value measurements as of December 31, 2013:

Quantitative Information about Level 3 Fair Value Measurements
					Range
(in thousands)	Fair Value as of 12/31/13		Valuation Method	Unobservable Input	Low		High		Weighted Average
Convertible Preferred Securities	$	25,720	Market Approach	EBITDA Multiples	7.50		8.00		7.75
			Income Approach	Discount Rate	14.5	%	14.5	%	14.5	%

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, 2013 and 2012, as follows:

(in thousands)	Carrying Amount		Fair Value		Fair Value Hierarchy Level
2013:
Fixed rate long-term notes payable	$	270,112	$	271,716	Level 2
Debenture bonds	41,131		42,475		Level 2
	$	311,243	$	314,191
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 2
	$	299,941	$	317,440

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