Archer Daniels Midland 2009 Annual Report Download - page 53

Download and view the complete annual report

Please find page 53 of the 2009 Archer Daniels Midland annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

47
Archer Daniels Midland Company
Notes to Consolidated Financial Statements (Continued)
Note 3.
Fair Value Measurements (Continued)
The Company uses the market approach valuation technique to measure the majority of its assets and liabilities
carried at fair value. Estimated fair market values for inventories carried at market are based on exchange-quoted
prices, adjusted for differences in local markets, broker or dealer quotations, or market transactions in either listed
or over-the-counter (OTC) markets. In such cases, the inventory is classified in Level 2. Certain inventories may
require management judgment or estimation for a significant component of the fair value amount. In such cases,
the inventory is classified as Level 3. Changes in the fair market value of inventories are recognized in the
consolidated statements of earnings as a component of cost of products sold.
The Company’s derivative contracts that are measured at fair value include forward commodity purchase and sale
contracts, exchange-traded commodity futures and option contracts, and OTC instruments related primarily to
agricultural commodities, energy, and foreign currencies. Exchange-traded futures and options contracts are valued
based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the Company’s
exchange-traded futures and options contracts are cash settled on a daily basis and, therefore, are not included in
this table. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted
prices adjusted for differences in local markets. These differences are generally determined using inputs from
broker or dealer quotations or market transactions in either the listed or OTC markets. When observable inputs are
available for substantially the full term of the asset or liability, the derivative contracts are classified in Level 2.
When unobservable inputs have a significant impact on the measurement of fair value, the contract’s fair value is
classified in Level 3. Based on historical experience with the Company’s suppliers and customers, the Company’s
own credit risk, and the Company’s knowledge of current market conditions, the Company does not view
nonperformance risk to be a significant input to fair value for the majority of its forward commodity purchase and
sale contracts. However, in situations when the Company believes the nonperformance risk to be a significant
input, the Company records estimated fair value adjustments, and classifies the contracts in Level 3 in the fair value
hierarchy. Changes in the fair market value of commodity-related derivatives are recognized in the consolidated
statements of earnings as a component of cost of products sold. Changes in the fair market value of foreign
currency-related derivatives are recognized in the consolidated statements of earnings as a component of net sales
and other operating income, cost of products sold, and other (income) expense–net. The effective portions of
changes in the fair market value of derivatives designated as cash flow hedges are recognized in the consolidated
balance sheets as a component of accumulated other comprehensive income until the hedged items are recorded in
earnings.
The Company’s available-for-sale securities are comprised of U.S. Treasury securities, obligations of U.S.
government agencies, corporate and municipal debt securities, and equity investments. U.S. Treasury securities
and certain publicly traded equity investments are valued using quoted market prices and are classified in Level 1.
U.S. government agency obligations, corporate and municipal debt securities and certain equity investments are
valued using third-party pricing services and substantially all are classified as Level 2. Security values that are
determined using pricing models are classified in Level 3. Unrealized changes in the fair market value of available-
for-sale marketable securities are recognized in the consolidated balance sheets as a component of accumulated
other comprehensive income unless a decline in value is deemed to be other than temporary at which point the
decline is recorded in earnings.
The Company’s assessment of the significance of a particular input to a fair value measurement requires judgment
and may affect the classification of assets and liabilities within the fair value hierarchy.