Fair Value Measurements

6 Months Ended

Jun. 30, 2011

9. Fair Value Measurements

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2011, December 31, 2010 and June 30, 2010:


(in thousands)			June 30, 2011
Assets (liabilities)	Level 1		Level 2		Level 3			Total

Cash equivalents	$	182	$	—	$	—		$	182
Commodity derivatives, net		89,769		71,296		8,794			169,859
Convertible preferred securities (b)		—		—		15,790			15,790
Other assets and liabilities (a)		18,917		—		(1,883	)		17,034

Total	$	108,868	$	71,296	$	22,701		$	202,865


(in thousands)			December 31, 2010
Assets (liabilities)	Level 1		Level 2		Level 3			Total

Cash equivalents	$	213	$	—	$	—		$	213
Commodity derivatives, net		61,559		129,723		12,406			203,688
Convertible preferred securities (b)		—		—		15,790			15,790
Other assets and liabilities (a)		17,983		—		(2,156	)		15,827

Total	$	79,755	$	129,723	$	26,040		$	235,518


(in thousands)				June 30, 2010
Assets (liabilities)	Level 1			Level 2			Level 3			Total

Cash equivalents	$	173,797		$	—		$	—		$	173,797
Commodity derivatives, net		(20,240	)		(23,140	)		7			(43,373	)
Convertible preferred securities (b)		—			—			13,100			13,100
Other assets and liabilities (a)		8,586			—			(2,277	)		6,309

Total	$	162,143		$	(23,140	)	$	10,830		$	149,833


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

(b)		Recorded in “Other noncurrent assets” on the Company’s balance sheet


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


	June 30, 2011								June 30, 2010
	Interest rate			Convertible								Convertible
	derivatives and			preferred		Commodity			Interest rate			preferred		Commodity
(in thousands)	swaptions			securities		derivatives, net			derivatives			securities		derivatives, net

Asset (liability) at December 31,	$	(2,156	)	$	15,790	$	12,406		$	(1,763	)	$	—	$	1,948
Gains (losses) included in earnings		(2	)		—		77			(72	)		—		(1,926	)
Unrealized gains (losses) included in other comprehensive income		149			—		—			(126	)		—		—
New contracts entered into		507			—		—			36			—		—
Transfers from level 2		—			—		2,500			—			—		—

Asset (liability) at March 31,	$	(1,502	)	$	15,790	$	14,983		$	(1,925	)	$	—	$	22
Investment in debt securities		—			—		—			—			13,100		—
Gains (losses) included in earnings		(310	)		—		(6,398	)		(99	)		—		(15	)
Unrealized gains (losses) included in other comprehensive income		(120	)		—		—			(253	)		—		—
New contracts entered into		49			—		—			—			—		—
Transfers from level 2		—			—		209			—			—		—

Asset (liability) at June 30,	$	(1,883	)	$	15,790	$	8,794		$	(2,277	)	$	13,100	$	7

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 Chicago Mercantile Exchange (“CME”) or the New York Mercantile Exchange (“NYMEX”) 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). 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. However, in situations where the Company believes that nonperformance risk exists, based on past or present experience with a customer or knowledge of the customer’s operations or financial condition, the Company classifies these commodity contracts as “level 3” in the fair value hierarchy and, accordingly, records estimated fair value adjustments based on internal projections and views of these contracts.

During the second quarter of 2010, the Company invested in cumulative convertible preferred shares of Iowa Northern Railway Corporation. These shares are carried at estimated fair value in “Other noncurrent assets” on the Company’s balance sheet. Changes in estimated fair value are recorded within “other comprehensive income”. See Note 8 for further information.

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.


(in thousands)	June 30, 2011		December 31, 2010

Fair value of long-term debt and interest rate contracts	$	311,886	$	307,865
Fair value in excess of carrying value		3,926		4,359

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

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, 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 Company 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 risk is 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.

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