Fair Value Measurements

3 Months Ended

Nov. 30, 2012

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 November 30, 2012, August 31, 2012 and November 30, 2011 are as follows:

	November 30, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Readily marketable inventories			$	2,186,328			$	2,186,328
Commodity and freight derivatives	$	47,254	341,387				388,641
Foreign currency derivatives	2,826						2,826
Other assets	75,873						75,873
Total Assets	$	125,953	$	2,527,715			$	2,653,668
Liabilities:
Commodity and freight derivatives	$	17,306	$	261,010			$	278,316
Interest rate swap derivatives			483				483
Foreign currency derivatives	2,077						2,077
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests					$	170,621	170,621
Total Liabilities	$	19,383	$	261,493	$	170,621	$	451,497

	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
	(Dollars in thousands)
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

	November 30, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Readily marketable inventories			$	1,423,083			$	1,423,083
Commodity and freight derivatives	$	147,915	254,406				402,321
Other assets	69,271						69,271
Total Assets	$	217,186	$	1,677,489			$	1,894,675
Liabilities:
Commodity and freight derivatives	$	18,583	$	282,259			$	300,842
Interest rate swap derivatives			595				595
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests					$	105,188	105,188
Total Liabilities	$	18,583	$	282,854	$	105,188	$	406,625

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	November 30, 2012		Technique	Unobservable Input	(Weighted Average)
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests	$	170,621	Adjusted Black Scholes option pricing model	Adjusted forward crack spread margin on November 30 (a)	$24.07-$35.49 (27.82)
				Contractual target crack spread margin (b)	$17.50
				Expected volatility (c)	84.58%
				Own credit risk (d)	0.80-2.80% (2.11%)
				Expected life (years) (e)	0.75-4.75 (3.15)

(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 November 30, 2012:

	Level 3 Liabilities
	Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests
Balances, September 1, 2012	$	127,516
Total losses included in cost of goods sold	43,105
Balances, November 30, 2012	$	170,621

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