Archer Daniels Midland 2007 Annual Report Download - page 44

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36
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
A sensitivity analysis has been prepared to estimate the Company’s exposure to market risk of its daily net
commodity position. The Company’s daily net commodity position consists of inventories, related purchase and
sale contracts, and exchange-traded futures contracts, including those contracts used to hedge portions of
production requirements. The fair value of such daily net commodity position is a summation of the fair values
calculated for each commodity by valuing each net position at quoted futures prices. Market risk is estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. Actual results may
differ.
2007 2006
Fair Value Market Risk Fair Value Market Risk
(In millions)
Highest long position $ 703 $ 70 $ 510 $ 51
Highest short position 565 57 574 57
Average position long (short) 180 18 (203) (20)
The change in fair value of the average position for 2007 compared to 2006 was principally a result of changes in
the daily net commodity position and commodity prices.
Marketable Equity Securities
Marketable equity securities, which are recorded at fair value, have exposure to price risk. The fair value of
marketable equity securities is based on quoted market prices. Risk is estimated as the potential loss in fair value
resulting from a hypothetical 10% adverse change in quoted market prices. Actual results may differ.
2007 2006
(In millions)
Fair value $ 227 $ 640
Market risk 23 64
The decrease in fair value for 2007 compared to 2006 resulted primarily from disposals of securities partially offset
by increases in fair market value of certain securities.
Limited Partnerships
The Company is a limited partner in various private equity funds which invest primarily in emerging markets. The
Company accounts for these limited partnerships using the equity method of accounting. Therefore, the Company
is recording in the consolidated statement of earnings its proportional share of the limited partnerships’ net income
or loss. The limited partnerships value their investments at fair value. Risk is estimated as the potential loss in fair
value resulting from a hypothetical 10% adverse change in market prices of the limited partnerships’ investments.
Actual results may differ.
2007 2006
(In millions)
Fair value of partnerships’ investments $ 188 $ 210
Market risk 19 21
The decrease in fair value for 2007 compared to 2006 resulted primarily from returns of capital.