BUS 419 Presentation

The Andersons, Viterra, and ADMBUS 419 PresentationOutline Industry AnalysisEconomicMarket The AndersonsCompany OverviewRisk ManagementFinancial Statement AnalysisViterra Company OverviewRisk Management Financial Statements AnalysisADMCompany Overview Risk Management Financial Statements Analysis

Industry overviewAgriculture industryRefers to the industrialized production of:LivestockPoultryFishCropsHistoryAgricultural production across the world doubled four times between 1820 and 1975 to feed a global population of one billon human beings in 1800 and greater than 7 billion in 2012.The number of farms has decreased and their ownerships is more concentrated.

TrendsAgriculture Industry is always seeking to improve, by adopting new technologies. The new technologies aim at improving the efficiency of various Agricultural based operations.Biotechnology has assisted in improving the quality of crops manifold. But it depends on the choice of the consumers as consumers opt for natural food.Transgenic rice is produced at a cheaper rate as compared to conventional rice.Population Growth

ForecastsWorld agricultural production is expected to grow nearly 1.5% yearly in the next few years, according to the Organization for Economic Co-operation and Development (OECD). Commodity prices are expected to decline from 2011 figures but will average at 20% or less for cereals and 30% or less for meats over the next decade. By 2050, there will be 3 billion more people to feed, by which time meat production demand will grow almost 75% and cereal production will have to increase by 1 billion tons.U.S. farm sector output

Total food expenditures in U.S.Total food expenditures for all food consumed in the U.S. were $1,240.4 billion in 2010, a 3.4-percent increase from $1,199.8 billion in 2009. Food expendituresYearTotal420051,053,403 20061,102,003 20071,159,903 20081,204,779 20091,199,839 20101,240,438

ChallengesAdoption of manufacturing processes in production as well as processingA system or food supply chain approach to production and distributionNegotiated coordination replacing market coordination of the systemA more important role for information, knowledge and other soft assets in reducing costIncreasing consolidation at all levels raising issues of market power and controlRisksIs classified into such categories:ProductionMarketing Financial LegalHuman Risks

Financing and financial structureLiquidityCompany must have the ability to hold accounts receivable on its asset and pay off short-term bondsSolvencyCompany may have the risk of having not enough income to payoff the bonds maturity in short termMarket prices and terms of tradeProduct price volatilityThe price of agricultural products may decrease a lot. As a result, company can suffer great loss when its input price is fixed by the long-term contractInput price volatilitySimilar to product price volatility, input price may increase a lot.Financial markets and instrumentsForeign exchangeFor companies with foreign businesses, FX rates have great effect on companys profitInterest ratePaying for the bonds and borrowing money with great interest costOperations and business practicesnatural hazardsNatural hazards can easily disrupt the continuous operation of the companyinternal processes and controlsOperating the facilities in wrong way or negligence can result in broking down the machinesCorn

Soybean

Wheat

Company OverviewListed on NYSEFocuses mainly on grain related services e.g., risk management, marketing, crop insurance and grain transportationA diversified company with interests in the grain, ethanol and plant nutrient sectors of U.S. agruiculture, as well as in railcar leasing and repair, turf products production and general merchandise retailingPrimary Market SegmentsGrain and EthanolGrain trading (through Lansing Trade Group 52% stake)RailPlant NutrientCobRetail Stores

Grain GroupOperates grain terminalsEarns income by:Buying and selling (mostly using forwards)Conditioning for resaleSpace income(appreciation or depreciation in the basis value of grain held)Ethanol GroupPart ownership of 3 LLCs, each of which owns an ethanol plant operated by The AndersonsGrain group has exclusive rights to provide all corn to each plantThe company buys from 50-100% of the ethanol from each plant for resaleEthanol group provides operations and administration of each plant on a cost-plus contract

Plant Nutrient GroupManufactures and distributes agricultural plant nutrientsOperates 27 manufacturing/distribution locationsWholesale Nutrients(Plant Nutrient Group Contd)Manufactures, stores, distributes agricultural nutrients, lime and gypsum pelletsAlso manufactures and distributes industrial products (de-icers for plane runways, water treatment products)Farm Centers (Plant Nutrient Group Contd)Provides nutrients, crop protection chemicals, seeds, agronomic advice to small farmersRecently purchased Eezy Gro inc., and Immokalee Farmers Supply inc.Rail GroupRepairs, sells, leases locomotives, railcars, containersFleet management services offered to private railcar ownersInvested in Iowa Northern Railway CompanyTurf & Specialty GroupTurf ProductsGolf courses, turf care marketsAlso sells fertilizerCob ProductsProcesses corncob based products for animal litter, among other things

Retail GroupRetail stores The AndersonsSpecialty foodsHome improvement productsFinancial Statements

Risk Management

The closest thing to a hedging philosophy availableIn the case of our off-balance sheet railcars and locomotives, the risk management philosophy of the Company is to match-fund the lease commitments where possible. Match-funding (in relation to rail lease transactions) means matching the terms of the financial intermediary funding arrangement with the lease terms of the customer where the Company is both lessee and sublessor.So, they really dont state what their hedging philosophy is, if they have one.Risk ManagementThe market risk inherent in the Company's market risk-sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices and interest ratesRisk ManagementCommodity Prices:Uses Futures, Options, and OTC contractsInterest RateShort-term:Interest CapLong-termInterest Swap and CapFX rateCollar contractsThe company is exposed to commodity price riskThey have unhedged position limitsAbove these limits, they use commodity futures, options, and forwardsForwards are for delivery, and rarely extend beyond one yearCommodityIn 2010, The Andersons Inc. increased the use of forward commodity contracts substantially

However, in 2011 is was reduced substantially

we are unable to offset 100% of the price risk of each transaction due to timing, availability of futures and options contracts and third party credit risk. Furthermore, there is a risk that the derivatives we employ will not be effective in offsetting all of the risks we are trying to manage. Our grain derivatives, for example, do not perfectly correlate with the basis component of our grain inventory and contracts.CommodityIn 2010, the profit margin increase to 1.91% from 1.27%

CommodityObserving the outflow of cash in inventories and commodity derivatives and margin deposits, the increased use of derivatives might be caused by larger inventory

Why the focus on corn?Any event that tends to negatively affect the supply of corn, such as adverse weather or crop disease, could increase corn prices and potentially harm our share of the ethanol LLCs results.High costs or shortages could require us to suspend ethanol operations until corn is available on economical terms, which would have a material adverse effect on operating results.Our futures, options and over-the-counter contracts are subject to margin calls. If there is a significant movement in the commodities market, we could be required to post significant levels of margin, which would impact our liquidity.There is no assurance that the efforts we have taken to mitigate the impact of the volatility of the prices of commodities upon which we rely will be successful and any sudden change in the price of these commodities could have an adverse affect on our business and results of operations.Sensitivity Analysis (commodity)The fair value of the position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices.

Interest RateThe Company has other interest rate contracts that are not designated as hedges. While the Company considers all of its interest rate derivative positions to be effective economic hedges of specified risks, these interest rate contracts are recorded on the balance sheet in prepaid expenses and other assets or current and long-term liabilities and changes in fair value are recognized currently in income as interest expense.Interest Rate ContdThe company is exposed to interest rate risk through their borrowing and financingTo mitigate this, they use long term interest rate swapsInterest Rate

Sensitivity Analysis (Interest Rate)The fair value of these contracts is estimated based on quoted market termination values. Market risk, which is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, is summarized below:

Foreign Currency RiskRailcar repair, leasing etc. in Canada exposes the company to fluctuations in the C$/US$ exchange rateThey use a costless collar that establishesa floor of $0.9875/US$ a ceiling of $1.069/US$

SwaptionsIn 2011, the Company entered into two $10 million swaptions for Rail purchase options on sale leaseback transactions to manage the risk of higher interest rates in the future.

The option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.http://www.investopedia.com/terms/s/swaption.asp#ixzz1oUbcpwCd

From the notes:While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges.The Company has a long-term interest rate swap recorded in other long-term liabilities and a foreign currency collar recorded in other assets and has designated them as cash flow hedges; accordingly, changes in the fair value of these instruments are recognized in other comprehensive income.Marking to marketThe Company marks to market all grain inventory, forward purchase and sale contracts for grain and ethanol, over-the-counter grain and ethanol contracts, and exchange-traded futures and options contracts.

Management estimates fair value based on exchange-quoted prices, adjusted for differences in local markets, as well as counter-party non-performance risk in the case of forward and over-the-counter contracts.

Accounting Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and grain inventories are included in sales and merchandising revenues.

Company OverviewProduction: Food ingredients, animal feeds, feed ingredient, and ingredients for wholesome foodConducts business in over 75 countriesSignificant Investments in joint ventures

The Company is one of the worlds largest processors of oilseeds, corn, wheat, cocoa, and other agricultural commodities and is a leading manufacturer of vegetable oil, protein meal, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients. The Company also has an extensive grain elevator and transportation network to procure, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, as well as processed agricultural commodities.

The Company expects to benefit from these investments, which typically aim to expand or enhance the Companys market for its products or offer other benefits including, but not limited to, geographic or product line expansion.66Primary Business SegmentOilseeds Processing Corn Processing Agricultural Services OtherFood processingFinancial activitiesOilseeds ProcessingOperates in North America, Europe, and South America100% ownership in Golden PeanutMajor supplier of peanuts and peanut-derived ingredients to both the U.S. and export markets and operator of one peanut shelling facility in ArgentinaPartial Ownerships in Wilmar (Singapore), Edible Oils Limited (UK), Stratas Foods LLC (U.S.), several other joint venturesWilmar - 16.4% ownership, engaged in the businesses of oil palm cultivation, oilseeds crushing, edible oils refining, sugar, consumer pack edible oilsprocessing and merchandising, specialty fats, oleo chemicals, biodiesel, fertilizers and soy protein manufacturing, rice and flour milling, and grainsmerchandising.

Editble Oils Limited - 50% interest, procure, package, and sell edible oils inthe United Kingdom. The Company also formed a joint venture with Princes Limited in Poland to procure, package, and sell edible oils in Poland, CzechRepublic, Slovakia, Hungary, and Austria.

Stratas Foods LLC, - 50% ownership, procures, packages, and sellsedible oils in North America.68Corn Processing50% interest in Almidones Mexicanos S.A., operates wet corn milling plant in Mexico50% in Eaststarch C.V. (Netherlands)50% interest in Telles, LLC40% interest in Red Star Yeast Company, LLC which sells in the U.S. and CanadaEaststarch C.V. operate wet corn milling plants in Bulgaria, Hungary, Slovakia, and Turkey

Telles, LLC market and sell a corn-based bioplastic

Red Star Yeast Company, LLC sell fresh and dry yeast in the U.S. and Canada

69Agricultural ServicesAgricultural Services transportation network capabilities include truck, rail, barge, port, and ocean-going vessel handling and freight servicesThe Agricultural Services segment also includes the activities related to the processing and distributing of formula feeds and animal health and nutrition products, and the procuring, processing, and distributing of edible beans.Agricultural Services80% in Toepfer, 36 sales offices worldwide45% interest in Kalama Export Company, grain export elevator in Washington

Toepfer (Alfred C. Toepfer International) glocal merchandiser of agricultural commodities and processedproducts71Otheractivities related to processing agricultural commodities into food ingredient products such as wheat into wheat flour, and cocoa into chocolate and cocoa products. Other also includes financial activities related to banking, captive insurance, futures commission merchant activities, and private equity fund investments.Other23.2% interest in Gruma, operates in U.S. Central America, South America, and EuropeWholly owned Bank and Trust CopmanyWholly owned Captive insurance (crop insurance for farmers in the U.S. and South AmericaWholly owned ADM Investor Services, Inc., commodities exchange and broker services Gruma S.A.B. de C.V. (Gruma) World largest producer and marketer of corn flour and tortillas with operations in Mexico, the United States, Central America, South America, and Europe. Additionally, the Company has a 20% share, through a joint venture with Gruma, in six U.S. corn flour mills and one in Italy. The Company also has a 40% share, through a joint venture with Gruma, in nine Mexican wheat flour mills.

Hickory Point Bank and Trust Company - furnishes public banking and trust services, as well as cash management, transfer agency, and securities safekeeping services, for the Company

73Financial Statements

75

The increase in net sales is mainly driven by higher average selling price and increase sales volume

Cost of productions was also increase due to higher costs of agricultural commodities.76

Risk Management

Major RisksCompetitionCommodityCurrency

ADM:The Company enters into derivative and non-derivative contracts with the primary objective of managing the Companys exposure to adverse price movements in the agricultural commodities used for, and produced in, our business operations.Hedging PhilosophyHedging PhilosophyThe Company will also use exchange-traded futures and exchange-traded and over-the-counter option contracts as components of merchandising strategies designed to enhance margins.

Risk Management (Competition)operates based principally on price, quality, and alternative productsGiven the commodity-based nature of its businesses, the Company focuses on managing unit costs and improving efficiency through technology improvements, productivity enhancements, and regular evaluation of the Companys asset portfolio- Continue R&D to improve efficiency and reduce cost85Risk Management (Competition)Secured demand from subsidiaries and affiliatesMajor supplier of agricultural commodity raw materials to Wilmar, Edible Oils Limited, and Stratas Foods LLCRisk Management (Commodity)The Companys commodity position consistsmerchandisable agricultural commodity inventoriespurchase and sales contractsenergy and freight contractsexchange-traded futures and exchange-traded and over-the-counter option contracts including contracts used to hedge portions of production requirements, net of sales

VaR 10% adverse price change

Risk Management (Currencies)Currency exchange contractsEuro, British Pound, Canadian Dollar, and Brazilian RealContracts Usedforward contractsswaps with banksexchange-traded futures contractsand over-the-counter optionsThe company conducts its business in over 75 countries. Transactions are mostly denominated in Euro, British pound, Canadian dollar, and Bravilian real

*for permanent foreign subsidiaries and affiliates, the company does not use currency exchange contracts to hedge.

89Risk Management (Interest)The Company does not use any derivative instruments to hedge against interest rate risks

Market risk is estimated as the potential increase in fair value resulting from a hypothetical 50 basis points decreases in interest rates

Fair Value MeasurementsThe Company determines the fair value of certain of its inventories of agricultural commodities, derivative contracts, and marketable securities based on the fair value definition and hierarchy levels

Fair Value Measurement (Contd)Three levels are established within the hierarchy that may be used to measure fair value:Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2: Observable inputs, including Level 1 prices that have been adjustedLevel 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets

Level 1 assets and liabilities include exchange-traded derivative contracts, U.S. treasury securities and certain publicly traded equity securities.Level 2 quoted prices for similar assets or liabilities; quoted prices in markets that are less active than traded exchanges; and other inputs that are observable or can be substantially corroborated by observable market data.Level 3 amounts can include assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.Note 3. Fair Value Measurement

94Note 3. (continued)

Except for derivatives designated as cash flow hedges, changes in fair value of commodity-related derivatives are recognized in the consolidated statements of earnings as a component of cost of products soldChanges of fair value of Foreign currency-related derivatives are recognized in the earnings as a component of net sales and other operating income, cost of products sold, and other (income) expense netChanges in the fair value of derivatives designated as cash flow hedges are recognized as a component of accumulated other comprehensive income

Fair Value Measurement (not hedge)The following is the fair values of derivatives not designated as hedging instruments

Impact on Financials

*important to note, At June 30, 2011, the Company only hedge 1% of its anticipated monthly grind of corn for the next 6 months.

98Impact on Financials

Impact on Financials

ViterraCompany OverviewVertically integrated global agri-businessFounded in 1924, headquartered in CanadaExtensive operations across Western Canada and AustraliaHas offices in Canada, the U.S., Australia, New Zealand, Japan, Singapore, China, Vietnam, Switzerland, Italy, Ukraine, Germany and IndiaShares traded on TSX and ASX

The company collect grains from farmers. The main activities of the company with the grain is to process and distribute the grain. 102Viterra: International

International OperationsViterra operate its business in more than 50 countries

Understanding the BusinessAct as a mediator in the agri-food value chainGenerate revenue at each stage of the value chain by providing crop inputs, handling grain, marketing grain and processingRelationship with producers in crucial to the businessMarkets grain through its commodity merchandisers, international trading offices or through the Canadian Wheat BoardSeasonal TrendsNorth AmericaMore than 75% of the annual sales from agri-products operation are generated between mid-April and the end of JuneEarnings from grain handling and markting operation are generated through the harvest period, between August and the end of OctoberSeasonal TrendsAustraliaIncome generated from the grain handling and marketing operations are earned between October and the end of January

Seasonal TrendsSelect Quarterly Financial Information

Sale VolumesNorth AmericaPrimary elevator shipments of western Canadian grains totaled 15.3 million tones in 2011Port terminal receipts were 10.8 million tones

South AustraliaReceived 8.6 million tones of grains in its South Australia systemPrimary Market SegmentsGrain Handling and MarketingAgri-productsFood ProcessingSegment OperationsGrain Handling and Marketing Mainly handles wheat, durum, barley, canola and pulsesDerives its revenue from accumulating, storing, blending, transporting and marketing these grains from the producers farm to end-use markets

Segment OperationsSensitivity analysis of grain handling and marketing operation in North America:

For operation in Australia:

Segment OperationsEBITDA

Segment OperationsAgri-productsViterra sell seed, crop protection product, fertilizer, bulk fuel and small agricultural equipment through a network of retail locationsThe company has 258 retail locations in Western Canada, represents about 35% of the market

Segment OperationsSensitivity analysis of sell of agri-products in North America:

Segment OperationsEBITDA

Segment OperationsProcessingViterra has 5 oat and specialty grain milling facilities, 2 pasta processing facilities and a canola processing facility in North AmericaThe company is one of the worlds largest industrial oat millers

Segment OperationsEBITDA

Segment OperationsConsolidated segment revenues

Other SegmentsOats and Specialty Grain Milling

Viterra is one of the worlds largest industrial oat millers and operatesapproximately 39% of the total North American oat milling capacityand approximately 46% of the industrial ingredient supply market.It processes raw oats into food ingredients and has a total millingcapacity of 540,000 tonnes of oats per year. The Companyscustomers are primarily North American food manufacturers whoare consistent brand leaders in breakfast cereals, whole grain andhealthy food choices.Other SegmentsPasta

Viterras pasta operations are located in the U.S., where Processingoperates a vertically integrated durum wheat milling and pastaproduction facility, as well as a second pasta production facility. Theprimary raw material input for pasta products is durum wheat, whichis processed through its milling facility into semolina and wheat floursthat are then used by Viterra to produce dry pasta products. Themilling facility has a durum grind capacity of 340,000 tonnes per year.The two production plants have a combined capacity of 254,000tonnes of pasta per year.Other SegmentsCanola ProcessingIn Western Canada, Viterra operates a canola processing plant with an annual processing capacity of 340,000 tonnes. Canola oil and meal from this plant are produced using a double expeller-press process, which does not use solvents, as opposed to the North American standard whereby hexane (a solvent) is used to maximize oil yields.

The Companys joint venture canola processing facility in southern China began operating during the fourth quarter of fiscal 2011,providing oil and meal to end-use customers located in the region.This facility utilizes the hexane oil extraction method to process about680,000 tonnes of canola annually. The majority of the canola seedrequirements for this facility are sourced from Viterras grain handlingand marketing operation.Other SegmentsMaltIn Australia, Viterra is the largest malt processor with six processingplants that account for 53% of Australias malt productioncapacity. The Companys Australian malt operation has an annualproduction capacity of about 440,000 tonnes, of which 340,000tonnes are destined for export markets and 100,000 tonnes areconsumed domestically. Viterra supplies malt to major domestic andinternational brewers that supply key global markets predominantlyin the Asia-Pacific region. Viterras malt operations requireapproximately 530,000 tonnes of malt barley per year, representing25% of the Australian malt barley crop. The Company is currentlybuilding a 110,000 tonne malt facility near Sydney, Australia, whichis expected to be completed in the first half of fiscal 2012.Other SegmentsFeedFeed includes the manufacture, sale and distribution of feed products and other related products for commercial and acreage-based livestock producers. Specialty feed formulations and feed product manufacturing is well diversified between dairy cattle, beef cattle, poultry, swine and other specialty livestock feed varieties. In Canada, feed is manufactured at six feed mills and one pre-mix manufacturing facility. The Company owns an additional six feed mills and commodity blending sites in the U.S. that manufacture complete feeds, supplements, pre-mixes and commodity ingredients for ranchers and dairy farmers in those states and other south central U.S. markets. In New Zealand, the Company operates three storage facilities in close proximity to the prime dairy regions and deepwater ports. It is involved in maize processing and also operates a feed manufacturing and distribution business with three feed mills representing production capacity of approximately 240,000 tonnes annually.Strategic Directionoptimizing core businesses through improved efficienciesgrowing shareholder value by maintaining and improving the quality of earnings, managing risk, and keeping a strong balance sheet,optimizing scale and influence in the grains the Company sources and transports to export markets,building sustainable competitive advantages, and seeking balance between business segments to mitigate risk through diversity.Financial Statements

Financial Statements

Risk Management

Major Risk FactorsWeather conditionCommodity Price FluctuationGrain volume and qualityForeign Exchange RateInterest RateCredit RiskRisks and Risk ManagementEnterprise Risk Management (ERM)A framework that developed under the standards of the Committee of Sponsoring Organizations of the Treadway CommissionReflects the appropriate risk tolerances as set out by management and board of directorsIdentify potential events that impact the companyProvide assurance to achieve the companys objective

Risks and Risk ManagementWeather riskViterras most significant riskEffect on the production volumes and crop qualityThe company had grain volume insurance to protect the revenues from a significant drop in grain volumes as a result of weather-related events. For 2011, the company had $75 million of coverage in place for Canadian and Australia exposureRisks and Risk ManagementCommodity price and trading riskFor all grains, oilseeds and special crops handled and marketed by Viterra, the company is exposed to the risk of price movement during the holding periodCompany uses exchange-traded futures and options contract as well as OTC contracts to minimize the effects of changes in prices on its agri-business inventories and forward cash purchase and sales contractsRisks and Risk ManagementValue at Risk (VaR)A methodology to standardize the commodity price risk assessment globallyVaR quantifies potential changes in the value of commodity positions from all sources of riskManagement use the daily VaR results to evaluate the impact of different scenarios on the financial resultsRisks and Risk Management

VaR 10% adverse price changeRisks and Risk ManagementForeign exchange riskViterra is exposed to foreign exchange risk on commodity contracts that are denominated in foreign currenciesThe company uses foreign currency forward contracts, cross-currency swaps, futures contracts and options to limit exposures to changes in foreign currency exchange rates (CAD against USD, AUD)Risks and Risk ManagementSensitivity analysis

Risks and Risk ManagementInterest rate riskViterra expose to interest rate risk relates primarily to the companys debt obligationsThe company manages this risk by using a combination of cash instruments, forwards and a mixture of fixed and floating ratesInterest rate swaps is also used in managing variable interest rates associated with companys debt portfolioRisks and Risk ManagementCredit riskThe Company is also exposed to credit risk in the event of non-performance of its counterparties on its derivative contractsthe Company only contracts with pre-authorized counterparties where agreements are in place and the Company monitors the credit ratings of its counterparties on an ongoing basisExchange-traded contracts are used to hedge future revenues in the Companys grain businessRisks and Risk ManagementCredit risk

Risks and Risk ManagementLiquidity riskViterra has to generate enough cash for the requirements of margin position, dividend, debt servicing, working capital, etc

Risks and Risk ManagementCompanys estimated value of remaining contractual maturities for its financial liabilities

Fair Value MeasurementFair value amounts represent point-in-time estimates and may not reflect fair value in the future. Fair value of financial instruments, including derivative instruments, takes into account the Companys own credit risk and the credit risk of the counterparties. The measurements are subjective in nature, involve uncertainties, and are a matter of significant judgmentFair Value MeasurementFor those financial instruments where fair value is recognized in the balance sheet, the methods and assumptions used to develop fair value measurements have been prioritized into three levels as per the fair value hierarchy included in GAAP:

Level 1 includes quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2 includes inputs that are observable other than quoted prices included in Level 1.Level 3 includes inputs that are not based on observable market data.Fair Value MeasurementThe following summarizes the methods and assumptions used in estimating the fair value of the Companys financial instruments where measurement is required:

The fair value of short-term financial instruments approximates their carrying amounts due to the relatively short period to maturity. These include cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities.Investments classified as available for sale with an active trading market are recorded at their fair value based on closing market quotations and are considered Level 1.The fair value of exchange-traded derivatives and securities is based on closing market quotations and is considered Level 1.Fair Value MeasurementThe fair value of commodity forward contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. The adjustments are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or over the counter (OTC) markets. Observable inputs are generally available for the full term of the contract and are considered Level 2.The fair value of foreign exchange forward contracts (OTC), natural gas swaps and cross-currency swaps is estimated using observable prices for similar instruments in active markets and is considered Level 2.The fair value of bond forward contracts is estimated by discounting net cash flows of the contracts using forward interest rates for Government of Canada bonds of the same remaining maturity. The methods and assumptions used are considered Level 2.

Fair Value MeasurementThe fair value of long-term debt with fixed interest rates is estimated by discounting the expected future cash flows using the risk-free interest rate on an instrument with similar terms adjusted for an appropriate risk premium for the Companys credit profile.When financial instruments lack an available trading market, fair value is determined using managements estimates and is calculated using market factors for instruments with similar characteristics and risk profiles. The methods and assumptions used in these limited cases would be assessed for significance and may be disclosed as Level 3.Hedge AccountingThe Company uses hedge accounting to match the cash flows of some of its processed products to be sold in foreign funds with its foreign currency hedging instruments. Under hedge accounting, the effective portion of the change in the fair value of the hedging instrument is recognized in other comprehensive income, while the ineffective portion is recognized immediately in cost of goods sold. Upon maturity of the derivative instrument, the effective gains and losses previously recognized in other comprehensive income are recorded in net earnings as a component of cost of goods sold in the same period the related hedged sales are recorded in net earnings.The Company uses hedge accounting for the foreign exchange swaps, cross-currency swaps and foreign denominated debt used to hedge portions of net investments in self-sustaining foreign operations. The effective portions of the hedges are recognized in other comprehensive income while any ineffective portion is recognized immediately in operating, general and administrative expenses.Hedge Accounting

Hedge AccountingStatement of comprehensive income