Fair Value Measurements

9 Months Ended

Sep. 30, 2022

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2022, December 31, 2021 and September 30, 2021:


(in thousands)	September 30, 2022
Assets (liabilities)	Level 1		Level 2		Level 3		Total
Commodity derivatives, net (a)	$	110,025	$	257,142	$	—	$	367,167
Provisionally priced contracts (b)	19,685		(41,188)		—		(21,503)
Convertible preferred securities (c)	—		—		16,946		16,946
Other assets and liabilities (d)	(3,037)		32,594		—		29,557
Total	$	126,673	$	248,548	$	16,946	$	392,167


(in thousands)	December 31, 2021
Assets (liabilities)	Level 1		Level 2		Level 3		Total

Commodity derivatives, net (a)	$	128,407	$	156,698	$	—	$	285,105
Provisionally priced contracts (b)	43,944		(89,797)		—		(45,853)
Convertible preferred securities (c)	—		—		11,618		11,618
Other assets and liabilities (d)	2,784		(7,361)		—		(4,577)
Total	$	175,135	$	59,540	$	11,618	$	246,293


(in thousands)	September 30, 2021
Assets (liabilities)	Level 1		Level 2		Level 3		Total


Commodity derivatives, net (a)	$	122,877	$	212,218	$	—	$	335,095
Provisionally priced contracts (b)	28,469		(25,134)		—		3,335
Convertible preferred securities (c)	—		—		11,066		11,066
Other assets and liabilities (d)	4,171		(11,865)		—		(7,694)
Total	$	155,517	$	175,219	$	11,066	$	341,802

(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 assets, net” on the Company’s Condensed Consolidated Balance Sheets related to certain available for sale securities.

(d)Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans and foreign exchange derivative contracts (Level 1), as well as 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, the Company has 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 RMI which consists of agricultural commodity 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 of RMI is disclosed in Note 2. 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 the Company has 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 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)	2022		2021
Assets at January 1,	$	11,618	$	8,849
Additional investments	3,883		2,800
Gains included in Other income, net	404		—
Assets at March 31,	$	15,905	$	11,649
Additional Investments	772		1,901
Gains included in Other income, net	126		—
Assets at June 30,	$	16,803	$	13,550
Additional investments	—		300
Gains (losses) included in Other income, net	143		(2,784)
Assets at September 30,	$	16,946	$	11,066

The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of September 30, 2022, December 31, 2021 and September 30, 2021:

Quantitative Information about Recurring Level 3 Fair Value Measurements

Fair Value as of

(in thousands)

September 30, 2022

December 31, 2021

September 30, 2021

Valuation Method

Unobservable Input

Weighted Average

Convertible preferred securities (a)

16,946

11,618

11,066

Implied based on market prices

N/A

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

Quantitative Information about Non-Recurring Level 3 Fair Value Measurements

(in thousands)

Fair Value as of 12/31/2021

Valuation Method

Unobservable Input

Weighted Average

Frac sand assets (b)

2,946

Third party appraisal

Various

N/A

Real property (c)

700

Market approach

Various

N/A

(b) The Company recognized impairment charges on long lived assets related to its frac sand business. The fair value of the assets were determined using prior transactions and third-party appraisals. These measures are considered Level 3 inputs on a nonrecurring basis.

(c) The Company recognized impairment charges on certain Trade 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 recent sale of comparable Trade group assets held by the Company.

There were no non-recurring fair value measurements as of September 30, 2022 and September 30, 2021.

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

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial 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 entity 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 risks 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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