Fair Value Measurements

The following tables present assets and liabilities, included 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.

Recurring fair value measurements at May 31, 2016, and August 31, 2015 are as follows:



	May 31, 2016
	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:
Commodity and freight derivatives	$	45,704	$	507,344	$	—	$	553,048
Foreign currency derivatives	—		14,088		—		14,088
Interest rate swap derivatives	—		19,877		—		19,877
Deferred compensation assets	74,274		—		—		74,274
Other assets	11,288		—		—		11,288
Total	$	131,266	$	541,309	$	—	$	672,575
Liabilities:
Commodity and freight derivatives	$	54,705	$	417,635	$	—	$	472,340
Foreign currency derivatives	—		14,276		—		14,276
Interest rate swap derivatives	—		15		—		15
Crack spread contingent consideration liability	—		—		24,661		24,661
Total	$	54,705	$	431,926	$	24,661	$	511,292



	August 31, 2015
	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:
Commodity and freight derivatives	$	46,976	$	429,094	$	—	$	476,070
Foreign currency derivatives	—		23,155		—		23,155
Interest rate swap derivatives	—		14,216		—		14,216
Deferred compensation assets	72,571		—		—		72,571
Other assets	10,905		—		—		10,905
Total	$	130,452	$	466,465	$	—	$	596,917
Liabilities:
Commodity and freight derivatives	$	58,873	$	368,179	$	—	$	427,052
Foreign currency derivatives	—		37,598		—		37,598
Interest rate swap derivatives	—		6,119		—		6,119
Crack spread contingent consideration liability	—		—		75,982		75,982
Total	$	58,873	$	411,896	$	75,982	$	546,751

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 with fixed-price components, 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.

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. See Note 10, Derivative Financial Instruments and Hedging Activities for additional information about interest rate swaps designated as fair value and cash flow hedges.

Deferred compensation and other assets — Our deferred compensation investments, Rabbi Trust assets and available-for-sale investments in common stock of other companies 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.

Crack spread contingent consideration liability — The fair value of the contingent consideration liability related to the purchase of CHS McPherson 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
Item	Fair Value May 31, 2016 (Dollars in thousands)	Valuation Technique	Unobservable Input	Range (Weighted Average)
Crack spread contingent consideration liability	$24,661	Adjusted Black-Scholes option pricing model	Forward crack spread margin quotes on May 31, 2016 ^(a)	$12.96-$14.81 ($13.72)
			Contractual target crack spread margin ^(b)	$17.50
			Expected volatility ^(c)	159.91%
			Risk-free interest rate ^(d)	0.48-0.94% (0.67)
			Expected life - years ^(e)	0.25-1.25 (0.66)

^(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

^(c) Represents quarterly adjusted volatility estimates derived from daily historical market data

^(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, 2016, and 2015.



	Level 3 Liabilities
	Crack spread contingent consideration liability
	2016		2015
	(Dollars in thousands)
Balances, February 29, 2016, and February 28, 2015, respectively	$	24,155	$	121,070
Total (gains) losses included in cost of goods sold	506		(11,850		)
Balances, May 31, 2016, and 2015, respectively	$	24,661	$	109,220

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, 2016, and 2015.



	Level 3 Liabilities
	Crack spread contingent consideration liability
	2016			2015
	(Dollars in thousands)
Balances, August 31, 2015, and 2014, respectively	$	75,982		$	114,917
Total (gains) losses included in cost of goods sold	(51,321		)	(5,697		)
Balances, May 31, 2016, and 2015, respectively	$	24,661		$	109,220

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