German - ADM

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS (Continued)The Company is a limited partner in various private equity funds which invest primarily in emerging markets. TheCompany accounts for these limited partnerships using the equity method of accounting. Therefore, the Companyis recording in the consolidated statement of earnings its proportional share of the limited partnerships’ net incomeor loss. The limited partnerships value their investments at fair value. Thus, unrealized gains and losses related tothe change in fair value of these investments are recorded in the limited partnerships’ statements of earnings. Thevaluation of these investments, as determined by the general partner, can be subjective, and the values may varysignificantly. Some of the factors causing the subjectivity and volatility of these valuations include the illiquidityand minority positions of these investments, currency exchange rate fluctuations, less-regulated securitiesexchanges, and the inherent business risks and limitations present in the emerging market countries. The Companyrecords the results of these limited partnerships based on the information provided to the Company by the generalpartner. Due to the subjectivity and volatility in valuing these investments, the fair value of these investments, andthus the Company’s results, could vary significantly over future periods.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe market risk inherent in the Company’s market risk sensitive instruments and positions is the potential lossarising from adverse changes in commodities futures prices, marketable equity security prices, market prices oflimited partnerships’ investments, foreign currency exchange rates, and interest rates as described below.CommoditiesThe availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factorssuch as weather, plantings, government (domestic and foreign) farm programs and policies, changes in globaldemand resulting from population growth and changes in standards of living, and global production of similar andcompetitive crops. To reduce price risk caused by market fluctuations, the Company generally follows a policy ofusing exchange-traded futures and options contracts to minimize its net position of merchandisable agriculturalcommodity inventories and forward cash purchase and sales contracts. The Company will also use exchange-tradedfutures and options contracts as components of merchandising strategies designed to enhance margins. The resultsof these strategies can be significantly impacted by factors such as the volatility of the relationship between thevalue of exchange-traded commodities futures contracts and the cash prices of the underlying commodities,counterparty contracts defaults, and volatility of freight markets. In addition, the Company from time-to-time entersinto derivative contracts which are designated as hedges of specific volumes of commodities that will be purchasedand processed, or sold, in a future month. The changes in the market value of such futures contracts havehistorically been, and are expected to continue to be, highly effective at offsetting changes in price movements ofthe hedged item. Gains and losses arising from open and closed hedging transactions are deferred in othercomprehensive income, net of applicable taxes, and recognized as a component of cost of products sold in thestatement of earnings when the hedged item is recognized.35