Fair Value Measurements

The following tables present assets and liabilities, included in on our Consolidated Balance Sheets, that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair values. 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 May 31, 2014, August 31, 2013 and May 31, 2013 are as follows:



	May 31, 2014
	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	$	—	$	1,159,581	$	—	$	1,159,581
Commodity and freight derivatives	86,639		457,559		—		544,198
Foreign currency derivatives	182		—		—		182
Interest rate swap derivatives	—		2		—		2
Other assets	89,848		—		—		89,848
Total Assets	$	176,669	$	1,617,142	$	—	$	1,793,811
Liabilities:
Commodity and freight derivatives	$	79,284	$	330,864	$	—	$	410,148
Interest rate swap derivatives	—		170		—		170
Foreign currency derivatives	2,153		—		—		2,153
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests	—		—		130,159		130,159
Total Liabilities	$	81,437	$	331,034	$	130,159	$	542,630



	August 31, 2013
	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	$	—	$	1,203,383	$	—	$	1,203,383
Commodity and freight derivatives	58,441		410,233		—		468,674
Interest rate swap derivatives	—		24,139		—		24,139
Foreign currency derivatives	6,894		185		—		7,079
Other assets	114,084		—		—		114,084
Total Assets	$	179,419	$	1,637,940	$	—	$	1,817,359
Liabilities:
Commodity and freight derivatives	$	59,184	$	399,710	$	—	$	458,894
Interest rate swap derivatives	—		248		—		248
Foreign currency derivatives	5,925		—		—		5,925
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests	—		—		134,134		134,134
Total Liabilities	$	65,109	$	399,958	$	134,134	$	599,201



	May 31, 2013
	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	$	—	$	1,433,639	$	—	$	1,433,639
Commodity and freight derivatives	53,375		456,883		—		510,258
Interest rate swap derivatives	—		9,160		—		9,160
Foreign currency derivatives	5,043		—		—		5,043
Other assets	131,901		—		—		131,901
Total Assets	$	190,319	$	1,899,682	$	—	$	2,090,001
Liabilities:
Commodity and freight derivatives	$	95,997	$	356,292	$	—	$	452,289
Interest rate swap derivatives	—		304		—		304
Foreign currency derivatives	3,883		—		—		3,883
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests	—		—		146,245		146,245
Total Liabilities	$	99,880	$	356,596	$	146,245	$	602,721

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, deferred compensation investments 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 cash flow hedges 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	May 31, 2014	Technique	Unobservable Input	(Weighted Average)
Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests	$130,159	Adjusted Black-Scholes option pricing model	Forward crack spread margin on May 31, 2014 (a)	$14.34-$17.72 ($16.55)
			Contractual target crack spread margin (b)	$17.50
			Expected volatility (c)	128.59%
			Risk-free interest rate (d)	1.80%-2.60% (2.23%)
			Expected life - years (e)	0.25-3.25 (1.89)

(a) Represents 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

(d) Represents yield curves for U.S. Treasury securities

(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 May 31, 2014 and 2013, respectively:



	Level 3 Liabilities
	Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests
	2014			2013
	(Dollars in thousands)
Balances, February 28, 2014 and 2013, respectively	$	140,631		$	140,987
Total (gains) losses included in cost of goods sold	(10,472		)	5,258
Balances, May 31, 2014 and 2013, respectively	$	130,159		$	146,245

The following table represents a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended May 31, 2014 and 2013, respectively:



	Level 3 Liabilities
	Accrued liability for contingent crack spread payments related to purchase of noncontrolling interests
	2014			2013
	(Dollars in thousands)
Balances, August 31, 2013 and 2012, respectively	$	134,134		$	127,516
Total (gains) losses included in cost of goods sold	(3,975		)	18,729
Balances, May 31, 2014 and 2013, respectively	$	130,159		$	146,245

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