Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2019, December 31, 2018 and June 30, 2018:

(in thousands)	June 30, 2019
Assets (liabilities)	Level 1			Level 2			Level 3		Total
Commodity derivatives, net (a)	$	103,350		$	62,473		$	—	$	165,823
Provisionally priced contracts (b)	(1,064		)	(38,215		)	—		(39,279		)
Convertible preferred securities (c)	—			—			8,404		8,404
Other assets and liabilities (d)	5,284			(10,750		)	—		(5,466		)
Total	$	107,570		$	13,508		$	8,404	$	129,482

(in thousands)	December 31, 2018
Assets (liabilities)	Level 1			Level 2			Level 3		Total
Commodity derivatives, net (a)	$	37,229		$	(18,864	)	$	—	$	18,365
Provisionally priced contracts (b)	(76,175		)	(58,566		)	—		(134,741		)
Convertible preferred securities (c)	—			—			7,154		7,154
Other assets and liabilities (d)	5,186			(353		)	—		4,833
Total	$	(33,760	)	$	(77,783	)	$	7,154	$	(104,389	)

(in thousands)	June 30, 2018
Assets (liabilities)	Level 1			Level 2			Level 3		Total
Commodity derivatives, net (a)	$	15,356		$	(48,451	)	$	—	$	(33,095	)
Provisionally priced contracts (b)	(37,787		)	(24,511		)	—		(62,298		)
Convertible preferred securities (c)	—			—			7,488		7,488
Other assets and liabilities (d)	4,136			(37		)	—		4,099
Total	$	(18,295	)	$	(72,999	)	$	7,488	$	(83,806	)

 

(a) Includes associated cash posted/received as collateral

(b) Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)

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

(d) Included in other assets and liabilities are assets held in rabbi trusts to fund deferred compensation plans, ethanol risk management contracts, and foreign exchange derivative contracts (Level 1), and interest rate derivatives (Level 2).

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 quoted on various exchanges 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 typically a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives, depending on the specific commodity. 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.

These fair value disclosures exclude physical grain inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount is disclosed in Note 2 Inventories. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.

Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or we have delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted exchange prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.

The risk management contract liability allows related ethanol customers to effectively unprice the futures component of their inventory for a period of time, subjecting the bushels to market fluctuations. The Company records an asset or liability for the market value changes of the commodities over the life of the contracts based on quoted exchange prices and as such, the balance is deemed to be Level 1 in the fair value hierarchy.

The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.

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

	Convertible Preferred Securities
(in thousands)	2019		2018
Assets (liabilities) at January 1,	$	7,154	$	7,388
Additional Investments	250		—
Assets (liabilities) at March 31,	$	7,404	$	7,388
Additional investments	1,000		100
Asset (liabilities) at June 30,	$	8,404	$	7,488

The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2019, December 31, 2018 and June 30, 2018:

	Quantitative Information about Level 3 Fair Value Measurements
(in thousands)	Fair Value as of June 30, 2019		Valuation Method	Unobservable Input	Weighted Average
Convertible preferred securities (a)	$	8,404	Implied based on market prices	N/A	N/A
Real Property (b)	2,719		Market Approach	N/A	N/A

(in thousands)	Fair Value as of December 31, 2018		Valuation Method	Unobservable Input	Weighted Average
Convertible preferred securities (a)	$	7,154	Implied based on market prices	N/A	N/A

(in thousands)	Fair Value as of June 30, 2018		Valuation Method	Unobservable Input	Weighted Average
Convertible preferred securities (a)	$	7,488	Implied based on market prices	N/A	N/A
Real property (b)	1,300		Sale agreement	N/A	N/A
Rail car assets (c)	4,063		National scrap index less cost to sell	N/A	N/A

(a) The Company considers observable price changes and other additional market data available in order to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.

(b) The Company recognized impairment charges on certain assets and measured the fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets was determined using prior transactions in the local market and a pending sale of grain assets held by the Company.

(c)The Company recognized impairment charges on rail assets during 2018 and measured fair value using Level 3 inputs on a nonrecurring basis. The fair value of the assets was determined based on a national scrap index less cost to sell.

Fair Value of Financial Instruments

The fair value of the Company’s long-term debt is estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. As such, the Company has concluded that the fair value of long-term debt is considered Level 2 in the fair value hierarchy.

(in thousands)	June 30, 2019		December 31, 2018		June 30, 2018
Fair value of long-term debt, including current maturities	$	1,078,185	$	517,998	$	444,821
Fair value in excess of carrying value (a)	4,495		5,813		(8,063		)

(a) Carrying value used for this purpose excludes unamortized debt issuance costs.

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