Edgar Filing: ARCHER DANIELS MIDLAND CO

adm10qfy10q2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 1-44

ARCHER-DANIELS-MIDLAND COMPANY

(Exact name of registrant as specified in its charter)

Delaware	41-0129150
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)

4666 Faries Parkway Box 1470 Decatur, Illinois (Address of principal executive offices)	62525 (Zip Code)

(217) 424-5200
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x Accelerated Filer o

Non-accelerated Filer o Smaller reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, no par value – 642,591,084 shares

(January 31, 2010)

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Archer-Daniels-Midland Company

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended
	December 31,
	2009			2008 (1)
	(In millions, except
	per share amounts)

Net sales and other operating income	$	15,913		$	16,673
Cost of products sold		14,860			15,461
Gross Profit		1,053			1,212

Selling, general and administrative expenses		358			337
Other (income) expense – net		(89	)		58
Earnings Before Income Taxes		784			817

Income taxes		223			238
Net Earnings including Noncontrolling Interests		561			579

Less: Net earnings (losses) attributable to noncontrolling interests		(6	)		1

Net Earnings Attributable to Controlling Interests	$	567		$	578

Average number of shares outstanding – basic		643			642

Average number of shares outstanding – diluted		645			643

Basic and diluted earnings per common share	$	0.88		$	0.90

Dividends per common share	$	0.14		$	0.13

See notes to consolidated financial statements.

(1) As adjusted for Accounting Standards Codification (ASC) Topics 470-20 and 810.

Archer-Daniels-Midland Company

Consolidated Statements of Earnings

(Unaudited)

	Six Months Ended
	December 31,
	2009			2008 (1)
	(In millions, except
	per share amounts)

Net sales and other operating income	$	30,834		$	37,833
Cost of products sold		28,808			34,754
Gross Profit		2,026			3,079

Selling, general and administrative expenses		712			746
Other (income) expense – net		(187	)		30
Earnings Before Income Taxes		1,501			2,303

Income taxes		443			678
Net Earnings including Noncontrolling Interests		1,058			1,625

Less: Net earnings (losses) attributable to noncontrolling interests		(5	)		2

Net Earnings Attributable to Controlling Interests	$	1,063		$	1,623

Average number of shares outstanding – basic		643			643

Average number of shares outstanding – diluted		644			644

Basic and diluted earnings per common share	$	1.65		$	2.52

Dividends per common share	$	0.28		$	0.26

See notes to consolidated financial statements.

(1) As adjusted for ASC Topics 470-20 and 810.

Archer-Daniels-Midland Company

Consolidated Balance Sheets

	(Unaudited)
	December 31,			June 30,
	2009			2009 (1)
	(In millions)
Assets
Current Assets
Cash and cash equivalents	$	1,317			$	1,055
Short-term marketable securities		317				500
Segregated cash and investments		2,187				2,430
Receivables		7,075				7,311
Inventories		9,126				7,782
Other assets		366				330
Total Current Assets		20,388				19,408

Investments and Other Assets
Investments in and advances to affiliates		2,693				2,459
Long-term marketable securities		651				626
Goodwill		524				532
Other assets		637				607
Total Investments and Other Assets		4,505				4,224

Property, Plant, and Equipment
Land		261				240
Buildings		3,667				3,304
Machinery and equipment		14,186				13,052
Construction in progress		1,845				2,245
		19,959				18,841
Accumulated depreciation		(11,323	)			(10,891	)
Net Property, Plant, and Equipment		8,636				7,950
Total Assets	$	33,529			$	31,582

Liabilities and Shareholders’ Equity
Current Liabilities
Short-term debt	$	221			$	356
Accounts payable		6,832				5,786
Accrued expenses		2,301				2,695
Current maturities of long-term debt		246				48
Total Current Liabilities		9,600				8,885

Long-Term Liabilities
Long-term debt		7,398				7,592
Deferred income taxes		553				308
Other		1,183				1,144
Total Long-Term Liabilities		9,134				9,044

Shareholders’ Equity
Common stock		5,234				5,204
Reinvested earnings		9,686				8,778
Accumulated other comprehensive income (loss)		(155	)			(355	)
Noncontrolling interests		30				26
Total Shareholders’ Equity		14,795				13,653
Total Liabilities and Shareholders’ Equity	$	33,529			$	31,582

See notes to consolidated financial statements.

(1) As adjusted for ASC Topics 470-20 and 810.

Archer-Daniels-Midland Company

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	December 31,
	2009			2008 (1)
	(In millions)
Operating Activities
Net earnings including noncontrolling interests	$	1,058		$	1,625
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization		431			381
Deferred income taxes		202			160
Equity in earnings of affiliates, net of dividends		(207	)		(128	)
Pension and postretirement accruals (contributions), net		45			(101	)
Deferred cash flow hedges		84			(475	)
Other – net		47			110
Changes in operating assets and liabilities
Segregated cash and investments		239			118
Receivables		214			2,143
Inventories		(1,274	)		1,855
Other assets		(35	)		92
Accounts payable and accrued expenses		576			85
Total Operating Activities		1,380			5,865

Investing Activities
Purchases of property, plant, and equipment		(939	)		(1,069	)
Proceeds from sales of property, plant, and equipment		22			54
Proceeds from sales of businesses		–			237
Net assets of businesses acquired		(57	)		(24	)
Purchases of marketable securities		(569	)		(1,644	)
Proceeds from sales of marketable securities		767			907
Other – net		(4	)		(18	)
Total Investing Activities		(780	)		(1,557	)

Financing Activities
Long-term debt borrowings		10			102
Long-term debt payments		(36	)		(16	)
Net payments under lines of credit agreements		(140	)		(2,698	)
Purchases of treasury stock		–			(100	)
Cash dividends		(180	)		(167	)
Other – net		8			9
Total Financing Activities		(338	)		(2,870	)

Increase in cash and cash equivalents		262			1,438
Cash and cash equivalents beginning of period		1,055			810

Cash and cash equivalents end of period	$	1,317		$	2,248

See notes to consolidated financial statements.

(1) As adjusted for ASC Topics 470-20 and 810.

Archer-Daniels-Midland-Company

Consolidated Statement of Shareholders’ Equity

(Unaudited)

								Accumulated
								Other						Total
	Common Stock				Reinvested			Comprehensive			Noncontrolling			Shareholders’
	Shares		Amount		Earnings			Income (Loss)			Interests			Equity
								(In millions)

Balance June 30, 2009 (1)		642	$	5,204	$	8,778		$	(355	)	$	26		$	13,653

Comprehensive income
Net earnings						1,063						(5	)
Other comprehensive income									200
Total comprehensive income															1,258
Cash dividends paid-$.28 per share						(180	)								(180	)
Other		1		30		25						9			64
Balance December 31, 2009		643	$	5,234	$	9,686		$	(155	)	$	30		$	14,795

See notes to consolidated financial statements.

(1) As adjusted for ASC Topics 470-20 and 810.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements

(Unaudited)

Note 1.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and six months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 30, 2009.

Subsequent Events

The Company has performed a review of subsequent events through the date the financial statements were filed with the Securities and Exchange Commission (SEC), and concluded there were no events or transactions occurring during this period that required recognition or disclosure in our financial statements.

Adoption of New Accounting Standards

On July 1, 2009, the Company adopted Financial Accounting Standards Board (FASB) amended guidance in Accounting Standards Codification (ASC) Topic 805, Business Combinations, which changes the financial accounting and reporting of business combination transactions. The guidance is to be applied prospectively to business combinations completed on or after the adoption date. This amended guidance requires recognizing, with certain exceptions, 100 percent of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity; measuring acquirer shares issued and contingent consideration arrangements in connection with a business combination at fair value on the acquisition date with subsequent changes in fair value reflected in earnings; and expensing as incurred acquisition-related transaction costs. The amended guidance also includes requirements relating to the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies and establishes a model to account for certain pre-acquisition contingencies. Under the amended guidance, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the acquirer should follow the recognition criteria in ASC Topic 450, Contingencies. There was no material effect on the Company’s consolidated financial statements as a result of the adoption of this amended guidance.

On July 1, 2009, the Company adopted the amended guidance in ASC Topic 470-20, Debt with Conversion and Other Options, which specifies that issuers of convertible debt instruments that may settle in cash upon conversion must bifurcate the proceeds from the debt issuance between the debt and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The equity component reflects the value of the conversion feature of the notes. The amended guidance requires retrospective application to all periods presented. See Note 6 for further information regarding the impact of adoption.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 1.

Basis of Presentation (Continued)

On July 1, 2009, the Company adopted amended guidance in ASC Topic 810, Consolidation, pertaining to the accounting and reporting of noncontrolling interests in financial statements. The amended guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. As required by the amended guidance, the Company reclassified $26 million attributable to noncontrolling interests from other long-term liabilities to a separate component of shareholders’ equity and the net earnings attributable to noncontrolling interests is now presented as a separate line item on the consolidated statements of earnings. Presentation and disclosure requirements are to be applied retrospectively for all periods presented and accordingly, the Company’s consolidated financial statements have been restated for the impact of the amended guidance. In addition, the Company consolidates certain noncontrolling interests which are associated with mandatorily redeemable instruments outside of the Company’s control. In accordance with guidance contained in SEC Accounting Series Release 268, Redeemable Preferred Stock and ASC Topic 480, Distinguishing Liabilities from Equity, noncontrolling interests which are associated with mandatorily redeemable instruments outside of the Company’s control have not been reclassified as a separate component of shareholders’ equity.

On July 1, 2009 the Company adopted the amended guidance in ASC Topic 260, Earnings per Share, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method. It also clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and are considered to be participating securities, thus requiring the issuing entity to apply the two-class method of computing basic and diluted EPS. There was no material effect on the Company’s consolidated financial statements as a result of the adoption of this amended guidance.

On July 1, 2009, the Company adopted the guidance in ASC Topic 820, Fair Value Measurements and Disclosures, for its nonfinancial assets and liabilities that are recognized at fair value on a nonrecurring basis, including goodwill, other intangible assets, and asset retirement obligations. The Company recorded no significant new or remeasured fair values during the period for its nonfinancial assets and liabilities that are recognized on a nonrecurring basis.

On October 1, 2009, the Company adopted the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures. The amendment permits certain entities to use Net Asset Value (NAV) as a practical expedient to estimate the fair value of investments within its scope provided the NAV is calculated as of the Company’s reporting date. The amendment also indicates how investments within its scope would be classified in the fair value hierarchy and requires enhanced disclosures about the nature and risks of investments. The disclosure requirements apply to all investments within the scope of the amendment, regardless of whether the Company elects to measure the investment using NAV as a practical expedient. The adoption of this amendment requires expanded disclosure in the notes to the Company’s consolidated financial statements but will not materially impact financial results.

Effective December 31, 2009, the Company adopted the amendment to ASC Topic 820 which provides guidance for the fair value measurement of liabilities. It clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available, fair value must be measured using specified valuation techniques. It further clarifies that both (a) a quoted price in an active market for the identical liability at the measurement date, and (b) the quoted price for the identical liability when traded as an asset in an active market (such as bonds), when no adjustments to the quoted price of the asset are required, are Level 1 fair value measurements. There was no material effect on the Company’s consolidated financial statements as a result of the adoption of this amended guidance.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 1.

Basis of Presentation (Continued)

Reclassifications

Certain items in prior year’s consolidated statements of cash flows have been reclassified to conform to the current year’s presentation with no impact to total cash provided by (used in) operating, investing, or financing activities.

Last-in, First-out (LIFO) Inventories

Interim period LIFO calculations are based on interim period costs and management’s estimates of year-end inventory levels. Because the availability and price of agricultural commodity-based LIFO inventories are unpredictable due to factors such as weather, government farm programs and policies, and changes in global demand, quantities of LIFO-based inventories at interim periods may vary significantly from management’s estimates of year-end inventory levels.

Note 2.

New Accounting Standards

Effective June 30, 2010, the Company will be required to adopt the amended guidance in ASC Topic 715, Compensation – Retirement Benefits, which expands disclosure requirements and requires entities to disclose investment policies and strategies, major categories of plan assets, fair value measurements for each major category of plan assets segregated by fair value hierarchy level as defined in ASC Topic 820, the effect of fair value measurements using Level 3 inputs on changes in plan assets for the period, and significant concentrations of risk within plan assets. The adoption of this amended guidance will require expanded disclosure in the notes to the Company’s consolidated financial statements but will not impact financial results.

Effective July 1, 2010, the Company will be required to adopt the amended guidance in ASC Topic 810, Consolidations, which will change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights (known as variable interest entities or VIEs) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This amended guidance will require a number of new disclosures including disclosures about the reporting entity’s involvement with VIEs, how its involvement with VIEs affects the reporting entity’s financial statements, and any significant changes in risk exposure due to that involvement. The Company has not yet assessed the impact of the adoption of this amended guidance on the Company’s financial statements.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 2.

New Accounting Standards (Continued)

Effective January 1, 2010 the Company will be required to adopt a portion of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures, which requires a number of additional disclosures regarding fair value measurements. The Company will be required to disclose the amounts of significant transfers between Level 1 and Level 2 and the reasons for the transfers; the reasons for any transfers in or out of Level 3; and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. ASC 820 is also amended to clarify that the Company is required to provide fair value measurement disclosures for each class of assets and liabilities and disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The Company will adopt these disclosure requirements for its quarter ending March 31, 2010 with the exception of the requirement to disclose information about purchases, sales, issuances and settlement in the reconciliation of recurring Level 3 measurements on a gross basis, which is effective for the Company on July 1, 2011. The adoption of this amended guidance will require expanded disclosure in the notes to the Company’s consolidated financial statements but will not impact financial results.

Note 3.

Fair Value Measurements

The Company determines the fair market value of certain of its inventories of agricultural commodities, derivative contracts, and marketable securities based on the fair value definition and hierarchy levels established in the guidance of ASC Topic 820, Fair Value Measurements and Disclosures. 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 1 assets and liabilities include exchange-traded derivative contracts, U.S. treasury securities and certain publicly traded equity securities.

Level 2: Observable inputs, including Level 1 prices that have been adjusted; 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: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, the Company generally classifies assets or liabilities as Level 3 when their fair value is determined using unobservable inputs that individually or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the assets or liabilities. Judgment is required in evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification. 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.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 3.

Fair Value Measurements (Continued)

The following table sets forth, by level, the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2009. In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of input that is a significant component of the fair value measurement determines the placement of the entire fair value measurement in the hierarchy. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.

	Fair Value Measurements at December 31, 2009
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)

Assets:
Inventories carried at market	$	-	$	3,972	$	609	$	4,581
Unrealized gains on derivative contracts		847		916		143		1,906
Marketable securities		902		594		-		1,496
Total Assets	$	1,749	$	5,482	$	752	$	7,983
Liabilities:
Unrealized losses on derivative contracts	$	1,010	$	785	$	66	$	1,861
Inventory-related liabilities		-		485		9		494
Total Liabilities	$	1,010	$	1,270	$	75	$	2,355

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.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 3.

Fair Value Measurements (Continued)

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 (loss) until the hedged items are recorded in earnings.

The Company’s marketable 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 (loss) unless a decline in value is deemed to be other than temporary at which point the decline is recorded in earnings.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 3.

Fair Value Measurements (Continued)

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the quarter ended December 31, 2009.

	Level 3 Fair Value Measurements
	Inventories Carried at Market, Net			Derivative Contracts, Net			Total
	(In millions)

Balance, September 30, 2009	$	530		$	(45	)	$	485
Total gains (losses), realized or unrealized, included in earnings before income taxes*		(49	)		74			25
Purchases, issuances and settlements		14			(8	)		6
Transfers in and/or out of Level 3		105			56			161
Ending balance, December 31, 2009	$	600		$	77		$	677

*Includes gains of $98 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at December 31, 2009.

	Level 3 Fair Value Measurements
	Inventories Carried at Market, Net			Derivative Contracts, Net			Total
	(In millions)

Balance, June 30, 2009	$	468		$	(2	)	$	466
Total gains (losses), realized or unrealized, included in earnings before income taxes*		(42	)		44			2
Purchases, issuances and settlements		(28	)		(17	)		(45	)
Transfers in and/or out of Level 3		202			52			254
Ending balance, December 31, 2009	$	600		$	77		$	677

*Includes gains of $96 million that are attributable to the change in unrealized gains or losses relating to Level 3 assets and liabilities still held at December 31, 2009.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Derivative Instruments and Hedging Activities

ASC Topic 815, Derivatives and Hedging, requires the Company to recognize all of its derivative instruments as either assets or liabilities in its consolidated balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a reporting entity must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. The Company does not currently have any derivatives designated as hedges of net investment in foreign operations or fair value hedges. The Company has certain derivatives designated as cash flow hedges; however, the majority of the Company’s derivatives have not been designated as hedging instruments.

Derivatives Not Designated as Hedging Instruments

To reduce price risk caused by market fluctuations in agricultural commodities and foreign currencies, the Company generally follows a policy of using exchange-traded futures and exchange-traded and OTC options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. The Company also uses exchange-traded futures and exchange-traded and OTC options contracts as components of merchandising strategies designed to enhance margins. The results of these strategies can be significantly impacted by factors such as the volatility of the relationship between the value of exchange-traded commodities futures contracts and the cash prices of the underlying commodities, counterparty contract defaults, and volatility of freight markets. Exchange-traded futures and exchange-traded and OTC options contracts, and forward cash purchase and sales contracts of certain merchandisable agricultural commodities are valued at fair value. Inventories of certain merchandisable agricultural commodities, which include amounts acquired under deferred pricing contracts, are stated at market value. Inventory is not a derivative and therefore is not included in the tables below. Changes in the market value of inventories of merchandisable agricultural commodities, forward cash purchase and sales contracts, and exchange-traded futures and exchange-traded and OTC options contracts are recognized in earnings immediately, resulting in cost of products sold approximating first-in, first-out (FIFO) cost. Unrealized gains and unrealized losses on forward cash purchase contracts, forward foreign currency exchange (FX) contracts, forward cash sales contracts, and exchange-traded and OTC options contracts represent the fair value of such instruments and are classified on the Company’s consolidated balance sheet as receivables and accrued expenses, respectively.

The following table sets forth the fair value of derivatives not designated as hedging instruments as of December 31, 2009.

	Assets		Liabilities
	(In millions)

FX Contracts	$	67	$	98
Commodity Contracts		1,797		1,758
Total	$	1,864	$	1,856

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Derivative Instruments and Hedging Activities (Continued)

The following table sets forth the pre-tax gains (losses) on derivatives not designated as hedging instruments that have been included in the consolidated statement of earnings for the three months and six months ended December 31, 2009.

	Three months ended			Six months ended
	December 31, 2009
	(In millions)

Interest Contracts
Other (income) expense – net	$	1		$	2

FX Contracts
Net sales and other operating income	$	(5	)	$	(20	)
Cost of products sold		18			25
Other (income) expense - net		20			28

Commodity Contracts
Cost of products sold	$	(584	)	$	(409	)
Total loss recognized in earnings	$	(550	)	$	(374	)

Derivatives Designated as Cash Flow Hedging Strategies

For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same line item affected by the hedged transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument that is in excess of the cumulative change in the cash flows of the hedged item, if any (i.e., the ineffective portion), hedge components excluded from the assessment of effectiveness, and gains and losses related to discontinued hedges are recognized in the consolidated statement of earnings during the current period.

For each of the commodity hedge programs described below, the derivatives are designated as cash flow hedges. The changes in the market value of such derivative contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. Once the hedged item is recognized in earnings, the gains/losses arising from the hedge will be reclassified from accumulated other comprehensive income (AOCI) to either net sales and other operating income, or cost of products sold. As of December 31, 2009, the Company has $26 million of after-tax gains in AOCI related to gains and losses from commodity cash flow hedge transactions. The Company expects to recognize all of these after-tax gains in the statement of earnings during the next 14 months. During the current period, the Company had no amounts recognized in earnings from cash flow hedges that were discontinued.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Derivative Instruments and Hedging Activities (Continued)

The Company, from time to time, uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of corn. The Company’s corn processing plants currently grind approximately 67 million bushels of corn per month which is expected to increase to approximately 75 million bushels per month when the Company’s second new dry-grind ethanol plant in the U.S. is completed. Most of the finished goods produced from this corn grind are sold at fixed prices and many of these finished goods are unable to be hedged. The Company will fix the purchase price of the corn that will be used, thereby economically protecting the margin on these finished goods sales. During the past 12 months, the Company hedged between 35% and 95% of its monthly anticipated grind. At December 31, 2009, the Company has hedged portions of its anticipated monthly purchases of corn over the next 14 months, ranging from 1% to 100% of its anticipated monthly grind.

The Company, from time to time, also uses futures, options, and swaps to fix the purchase price of the Company’s anticipated natural gas requirements for certain production facilities. The objective of this hedging program is to reduce the variability of cash flows associated with the Company’s forecasted purchases of natural gas. These production facilities use approximately 3.5 million MMbtus of natural gas per month. During the past 12 months, the Company hedged between 18% and 60% of the quantity of its anticipated monthly natural gas purchases. At December 31, 2009, the Company has hedged portions of its anticipated monthly purchases of natural gas over the next 12 months, ranging from 16% to 77% of its anticipated monthly natural gas purchases.

To protect against fluctuations in cash flows due to foreign currency exchange rates, the Company from time to time will use forward foreign exchange contracts with banks as foreign currency cash flow hedge programs. Certain production facilities have manufacturing expenses and some sales contracts denominated in non-functional currency. To reduce the risk of fluctuations in cash flows due to changes in the exchange rate between functional versus non-functional currency, the Company will hedge some portion of the forecasted foreign currency expenditures and/or receipts. The fair value of foreign exchange contracts designated as cash flow hedging instruments as of December 31, 2009 was immaterial.

At December 31, 2009, AOCI included $28 million of after-tax gains related to treasury-lock agreements and interest rate swaps. The instruments were executed in order to lock in the Company’s interest rate prior to the issuance or remarketing of debentures. Both the treasury-lock agreements and interest rate swaps are designated as cash flow hedges of the risk of changes in the future interest payments attributable to changes in the benchmark interest rate. The objective of the treasury-lock agreements is to protect the Company from changes in the benchmark rate from the date the Company decided to issue the debt to the date when the debt will actually be issued. The Company will recognize the $28 million of gains in its consolidated statement of earnings over the terms of the hedged items.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Derivative Instruments and Hedging Activities (Continued)

The following table sets forth the fair value of derivatives designated as hedging instruments as of December 31, 2009.

	Assets		Liabilities
	(In millions)

Interest Contracts	$	38	$	-
Commodity Contracts		4		5
Total	$	42	$	5

The following tables set forth the pre-tax gains (losses) on derivatives designated as hedging instruments that have been included in the consolidated statement of earnings for the three and six months ended December 31, 2009.

Three Months ended December 31, 2009	Consolidated Statement of Earnings Location	Amount
		(In millions)
Commodity Contracts
Effective amount recognized in earnings	Cost of products sold	$	(8	)
Ineffective amount recognized in earnings	Cost of products sold		30
Total amount recognized in earnings		$	22

Six Months ended December 31, 2009	Consolidated Statement of Earnings Location	Amount
		(In millions)
FX Contracts
Effective amount recognized in earnings	Other (income) expense – net	$	(1	)

Commodity Contracts
Effective amount recognized in earnings	Cost of products sold		(50	)
Ineffective amount recognized in earnings	Cost of products sold		22
Total amount recognized in earnings		$	(29	)

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 4.

Derivative Instruments and Hedging Activities (Continued)

The following tables set forth the changes in accumulated other comprehensive income related to derivatives gains (losses) for the period ended December 31, 2009.

	Three months ended
	December 31, 2009
	(In millions)

Balance at September 30, 2009	$	(11	)
Unrealized gains (losses)		81
Losses reclassified to earnings		8
Tax effect		(24	)
Balance at December 31, 2009	$	54

	Six months ended
	December 31, 2009
	(In millions)

Balance at June 30, 2009	$	(13	)
Unrealized gains (losses)		58
Losses reclassified to earnings		51
Tax effect		(42	)
Balance at December 31, 2009	$	54

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Marketable Securities and Cash Equivalents

				Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
	(In millions)
December 31, 2009

United States government obligations
Maturity less than 1 year		$	399	$	–	$	–		$	399
Maturity 1 to 5 years			39		1		–			40
Government–sponsored enterprise obligations
Maturity less than 1 year			52		–		–			52
Maturity 1 to 5 years			56		2		–			58
Maturity 5 to 10 years			126		–		(1	)		125
Maturity greater than 10 years			250		5		(1	)		254
Corporate debt securities
Maturity less than 1 year			7		–		–			7
Maturity 1 to 5 years			33		2		–			35
Other debt securities
Maturity less than 1 year			783		–		–			783
Maturity 5 to 10 years			6		–		–			6
Maturity greater than 10 years			13		–		(1	)		12
Equity securities
Available-for-sale			70		48		(18	)		100
Trading			22		–		–			22
		$	1,856	$	58	$	(21	)	$	1,893

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5.

Marketable Securities and Cash Equivalents (Continued)

				Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
		(In millions)
June 30, 2009

United States government obligations
Maturity less than 1 year		$	645	$	–	$	–		$	645
Maturity 1 to 5 years			29		1		–			30
Government–sponsored enterprise obligations
Maturity less than 1 year			8		–		–			8
Maturity 1 to 5 years			59		2		–			61
Maturity 5 to 10 years			104		1		(1	)		104
Maturity greater than 10 years			268		6		–			274
Corporate debt securities
Maturity less than 1 year			10		–		–			10
Maturity 1 to 5 years			37		1		–			38
Other debt securities
Maturity less than 1 year			463		–		–			463
Maturity 5 to 10 years			6		–		–			6
Maturity greater than 10 years			16		–		(3	)		13
Equity securities
Available-for-sale			69		33		(29	)		73
Trading			19		–		–			19
		$	1,733	$	44	$	(33	)	$	1,744

Of the $21 million in unrealized losses at December 31, 2009, $2 million arose within the last 12 months. The market value of the investments that have been in an unrealized loss position for less than 12 months and for 12 months and longer is $337 million and $38 million, respectively. The market value of United States government obligations, government-sponsored enterprise obligations, and other debt securities with unrealized losses as of December 31, 2009, is $348 million. The $3 million of unrealized losses associated with United States government obligations, government sponsored enterprise obligations and other debt securities are not considered to be other-than-temporary because the present value of expected cash flows to be collected is equivalent to or exceeds the amortized cost basis of the securities. The market value of available-for-sale equity securities with unrealized losses as of December 31, 2009, is $27 million. All of the $18 million in unrealized losses associated with available-for-sale equity securities is related to the Company’s investment in one security. The Company does not intend to sell any of its impaired debt and equity securities, and, based upon its evaluation, the Company does not believe it is likely that the Company will be required to sell the investments before recovery of their amortized cost bases which is expected in the foreseeable future.

Note 6.

Debt and Financing Arrangements

The Company has outstanding $1.15 billion principal amount of convertible senior notes (the Notes) due in 2014. As of December 31, 2009, none of the conditions permitting conversion of the Notes had been satisfied. Therefore, no share amounts related to the conversion of the Notes or exercise of the warrants sold in connection with the issuance of the Notes were included in diluted average shares outstanding.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6.

Debt and Financing Arrangements (Continued)

On July 1, 2009, the Company began accounting for the Notes in accordance with the amended guidance in ASC Topic 470-20, Debt with Conversion and Other Options, pertaining to convertible debt instruments with cash settlement features. The amendment addresses the accounting for convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. Previously, most forms of convertible debt securities were treated solely as debt. Under the new guidance, issuers of convertible debt securities within its scope must separate these securities into two accounting components; a debt component, representing the issuer’s contractual obligation to pay principal and interest; and an equity component, representing the holder’s option to convert the debt security into equity of the issuer or, if the issuer so elects, an equivalent amount of cash.

The amended guidance required retrospective application to all periods presented. The following tables reflect the Company’s previously reported amounts, along with adjustments required by the amended guidance:

	Consolidated Statement of Earnings Impact

	Three Months Ended December 31, 2008
	As Originally		Adjustment due to
	Reported		Topic 470-20			As Adjusted
	(In millions, except per share amounts)

Interest expense reported in
Other (income) expense – net	$	120	$	10		$	130
Income taxes		241		(3	)		238

Net earnings		585		(7	)		578	(1)

Basic and diluted earnings per
common share		0.91		(0.01	)		0.90

	Six Months Ended December 31, 2008
	As Originally		Adjustment due to
	Reported		Topic 470-20			As Adjusted
	(In millions, except per share amounts)

Interest expense reported in
Other (income) expense – net	$	249	$	19		$	268
Income taxes		685		(7	)		678

Net earnings		1,635		(12	)		1,623	(1)

Basic and diluted earnings per
common share		2.54		(0.02	)		2.52

(1)	Currently presented as “net earnings attributable to controlling interests” in the consolidated statements of earnings as a result of the adoption of ASC Topic 810 on July 1, 2009.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 6.

Debt and Financing Arrangements (Continued)

	Consolidated Balance Sheet Impact

	June 30, 2009
	As Originally		Adjustment due to
	Reported		Topic 470-20			As Adjusted
			(In millions)

Other assets	$	610	$	(3	)	$	607
Long-term debt		7,800		(208	)		7,592
Deferred income taxes		230		78			308
Common stock		5,022		182			5,204
Reinvested earnings		8,832		(54	)		8,778

The Company also has outstanding $1.75 billion principal amount of Equity Units (the Units) due in 2011. The Units are a combination of (a) debt and (b) forward purchase contracts for the holder to purchase the Company’s common stock. The forward purchase contracts issued in connection with the Units will be settled for the Company’s common stock no later than June 1, 2011. Until settlement of the forward purchase contracts, the shares of stock underlying each forward purchase contract are not outstanding. The forward purchase contracts will only be included in the computation of diluted earnings per share to the extent they are dilutive. As of December 31, 2009, the forward purchase contracts were not considered dilutive and therefore were not included in the computation of diluted earnings per share.

At December 31, 2009, the fair value of the Company’s long-term debt exceeded the carrying value by $511 million, as estimated using quoted market prices or discounted future cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

For further information on the Notes and Units and additional information on the impact of ASC Topic 470-20 (formerly FSP APB 14-1), refer to Note 1 “Summary of Significant Accounting Policies” and Note 8 “Debt and Financing Arrangements” in the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2009.

Note 7.

Income Taxes

The Company’s effective tax rate for the quarter and six months ended December 31, 2009, was 28.4% and 29.5%, respectively, compared to 29.1% and 29.4% for the quarter and six months ended December 31, 2008. The decrease in the Company’s effective tax rate for the quarter is primarily due to changes in the geographic mix of pretax earnings.

The Company has an investment in Wilmar International Holdings, Limited (WIHL), a subsidiary of ADM Asia Pacific, Limited (ADMAP), a wholly-owned subsidiary of the Company. Through WIHL, ADMAP holds an indirect ownership interest in Wilmar International Ltd. (WIL). Historically, the Company considered the retained earnings of its investment in ADMAP to be permanently reinvested outside the U.S. and did not provide a deferred income tax liability associated with the undistributed earnings of this investment. In February, 2009, the shareholders of WIHL approved a plan of voluntary liquidation which was followed by a partial liquidating distribution in April, 2009. Pursuant to this distribution, ADMAP received publicly traded shares of WIL that represented approximately 40% of the WIL shares indirectly held by WIHL. The liquidation caused the difference between the market value of the WIL shares received and the tax basis of ADMAP’s investment in WIHL to be subject to U.S. income tax as a deemed distribution from ADMAP to the Company. Consequently, the Company concluded that a portion of its investment in ADMAP related to its investment in WIHL was not permanently reinvested.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 7.

Income Taxes (Continued)

The finalization of the liquidation process is expected to occur during calendar year 2010 and is contingent on certain regulatory approvals. While the ultimate impact of the transaction is uncertain, based on the February 5, 2010 market value of WIL shares and certain other assumptions, including the applicable foreign currency exchange rate and the U.S. income tax rate, the finalization of the liquidation could result in additional income tax expense for the Company of approximately $530 million in the period(s) that the liquidation occurs.

The Company is subject to income taxation in many jurisdictions around the world. The Company is subject to routine examination by domestic and foreign tax authorities and frequently faces challenges regarding the amount of taxes due. These challenges include questions regarding the timing, nature and amount of deductions and the allocation of income among various tax jurisdictions. Resolution of the related tax positions through negotiation with relevant tax authorities or through litigation may take years to complete. Therefore, it is difficult to predict the timing for resolution of tax positions. In its routine evaluations of the exposure associated with various tax filing positions, the Company recognizes a liability, when necessary, for estimated potential additional tax owed by the Company in accordance with ASC 740, Income Taxes. However, the Company cannot accurately predict or provide assurance as to the ultimate outcome of these ongoing or future examinations.

In December 2009, the Company’s wholly-owned subsidiary, ADM do Brasil Ltda. (“ADM do Brasil”), received a tax assessment in the amount of $457 million (subject to variation in currency exchange rates) consisting of tax, penalty, and interest, from the Brazilian Federal Revenue Service challenging the tax deductibility of commodity hedging losses incurred by ADM do Brasil in 2004. Commodity hedging transactions can result in gains, which are included in ADM do Brasil’s calculations of taxable income in Brazil, and losses, which ADM do Brasil deducts from its taxable income in Brazil. If the Brazilian Federal Revenue Service were to challenge similar deductions in all tax years still open to assessment (2005-2009), the Company estimates it could receive further assessments totaling approximately $150 million in addition to the $457 million assessment related to 2004 (as at December 31, 2009 and subject to variation in currency exchange rates).

The Company has evaluated its tax position regarding these hedging transactions and concluded, based in part upon advice from Brazilian legal counsel, that it was appropriate to recognize both gains and losses resulting from hedging transactions when determining its Brazilian income tax expense. Therefore, the Company has continued to recognize the tax benefit from hedging losses in its financial statements and has not recorded any tax liability for the amounts assessed by the Brazilian Federal Revenue Service. The Company intends to vigorously defend its position against the current assessment and any similar assessments that may be issued for future years.

In January 2010, ADM do Brasil filed an appeal with the Brazilian Federal Revenue Service. If ADM do Brasil is unsuccessful in the administrative appellate process, further appeals are available in the Brazilian federal courts. While the Company believes that its consolidated financial statements properly reflect the tax deductibility of these hedging losses, the ultimate resolution of this matter could result in the future recognition of significant additional payments of and expense for income tax and the associated interest and penalties.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 8.

Comprehensive Income

The components of comprehensive income, net of related tax, are as follows:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(In millions)

Net earnings including noncontrolling interests	$	561		$	579		$	1,058		$	1,625
Unrealized gain (loss) on investments		1			(8	)		16			(27	)
Deferred gain (loss) on hedging activities		65			(22	)		67			(254	)
Pension liability adjustment		3			9			(5	)		14
Foreign currency translation adjustment		(27	)		(317	)		122			(942	)
Comprehensive income		603			241			1,258			416
Less: Comprehensive income attributable to noncontrolling interests		(6	)		1			(5	)		2
Comprehensive income attributable to controlling interests	$	609		$	240		$	1,263		$	414

Note 9.

Other (Income) Expense - Net

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(In millions)

Interest expense	$	105		$	130		$	203		$	268
Investment income		(36	)		(48	)		(66	)		(102	)
Net (gain) loss on marketable
securities transactions		(6	)		–			(7	)		(9	)
Equity in earnings of affiliates		(139	)		(93	)		(291	)		(216	)
Other – net		(13	)		69			(26	)		89
	$	(89	)	$	58		$	(187	)	$	30

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10.

Segment Information

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing and Agricultural Services. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are aggregated and classified as Other.

The Oilseeds Processing segment includes activities related to the crushing and origination of oilseeds such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, peanuts, and flaxseed into vegetable oils and protein meals principally for the food and feed industries. In addition, oilseeds and oilseed products may be processed internally or resold into the marketplace as raw materials for other processing. Crude vegetable oil is sold "as is" or is further processed by refining, bleaching, and deodorizing into salad oils. Salad oils can be further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is sold for use in paints and other industrial products. Refined oil can be further processed for use in the production of biodiesel. Oilseed meals are primary ingredients used in the manufacture of commercial livestock and poultry feeds. Oilseeds Processing includes activities related to the production of natural health and nutrition products and the production of other specialty food and feed ingredients. This segment also includes activities related to the Company’s interest in its unconsolidated affiliate in Asia, Wilmar International Limited.

The Corn Processing segment includes activities related to the production of sweeteners, starches, dextrose, and syrups primarily for the food and beverage industry as well as activities related to the production by fermentation of bioproducts such as ethanol, amino acids, and other food, feed and industrial products. The Corn Processing segment also includes activities related to the processing of sugarcane into ethanol.

The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients for the agricultural processing industry. In addition, the Agricultural Services segment includes activities related to edible bean procurement, rice milling, formula feed, and animal health and nutrition. Agricultural Services’ grain sourcing and transportation network also provides reliable and efficient services to the Company’s agricultural processing operations. Also included in Agricultural Services are the activities of A.C. Toepfer International, a global merchant of agricultural commodities and processed products.

Other includes the Company’s remaining processing operations, consisting of activities related to processing agricultural commodities into food ingredient products such as wheat into wheat flour, cocoa into chocolate and cocoa products, and barley into malt. The Company sold its malt operations on July 31, 2008. Other also includes financial activities related to banking, captive insurance, private equity fund investments, and futures commission merchant activities.

Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less identifiable operating expenses, including an interest charge related to working capital usage. Also included in segment operating profit are equity in earnings of affiliates based on the equity method of accounting. Unallocated corporate expenses, investment income, unallocated interest expense, marketable securities transactions, FIFO to LIFO inventory adjustments, and noncontrolling interests have been excluded from segment operations and classified as Corporate.

For detailed information regarding the Company’s reportable segments, see Note 15 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended June 30, 2009.

Archer-Daniels-Midland Company

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 10.

Segment Information (Continued)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(In millions)

Sales to external customers
Oilseeds Processing	$	4,880		$	5,296		$	11,238		$	13,068
Corn Processing		2,029			1,853			3,945			4,094
Agricultural Services		7,640			8,141			12,962			17,710
Other		1,364			1,383			2,689			2,961
Total	$	15,913		$	16,673		$	30,834		$	37,833

Intersegment sales
Oilseeds Processing	$	18		$	16		$	37		$	68
Corn Processing		8			19			17			59
Agricultural Services		703			800			1,148			1,612
Other		37			39			74			78
Total	$	766		$	874		$	1,276		$	1,817

Net sales
Oilseeds Processing	$	4,898		$	5,312		$	11,275		$	13,136
Corn Processing		2,037			1,872			3,962			4,153
Agricultural Services		8,343			8,941			14,110			19,322
Other		1,401			1,422			2,763			3,039
Intersegment elimination		(766	)		(874	)		(1,276	)		(1,817	)
Total	$	15,913		$	16,673		$	30,834		$	37,833

Segment operating profit
Oilseeds Processing	$	352		$	319		$	636		$	829
Corn Processing		290			29			478			147
Agricultural Services		150			462			325			890
Other		178			5			305			125
Total segment operating profit		970			815			1,744			1,991
Corporate		(186	)		2			(243	)		312
Earnings before income taxes	$	784		$	817		$	1,501		$	2,303

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

The Oilseeds Processing segment includes activities related to the origination and crushing of oilseeds such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, peanuts, and flaxseed into vegetable oils and protein meals principally for the food and feed industries. In addition, oilseeds and oilseed products may be processed internally or resold into the marketplace as raw materials for other processing. Crude vegetable oil is sold "as is" or is further processed by refining, bleaching, and deodorizing into salad oils. Salad oils can be further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is sold for use in paints and other industrial products. Refined oil can be further processed for use in the production of biodiesel. Oilseed protein meals are primary ingredients used in the manufacture of commercial livestock and poultry feeds. Oilseeds Processing includes activities related to the production of natural health and nutrition products and the production of other specialty food and feed ingredients. This segment also includes activities related to the Company’s unconsolidated affiliate in Asia, Wilmar International Limited.

Operating Performance Indicators

The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Item 1A, “Risk Factors” included in the Company’s annual report on Form 10-K for the year ended June 30, 2009.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The Company’s Oilseeds Processing, Agricultural Services, and wheat processing operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. Therefore, changes in agricultural commodity prices have relatively equal impacts on both net sales and other operating income and cost of products sold and minimal impact on the gross profit of underlying transactions. As a result, changes in gross profit of these businesses do not necessarily correspond to the changes in net sales and other operating income amounts.

The Company’s Corn Processing operations and certain other food and animal feed processing operations also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. In these operations, agricultural commodity market price changes can result in significant fluctuations in cost of products sold, and such price changes cannot necessarily be passed directly through to the selling price of the finished products.

The Company conducts its business in many countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. Fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, and Canadian dollar, as compared to the U.S. dollar will result in corresponding fluctuations in the U.S. dollar value of revenues and expenses reported by the Company. The impact of these currency exchange rate changes, where significant, is discussed below.

The Company measures the performance of its business segments using key financial metrics such as segment operating profit, return on fixed capital investment, return on net assets, and return on equity. The Company’s operating results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, changes in global demand resulting from population growth, general global economic conditions, and changes in standards of living, and global production of similar and competitive crops. Due to these unpredictable factors, the Company does not provide forward-looking information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008

Net earnings attributable to controlling interests decreased 2% to $567 million primarily due to a $177 million pre-tax decline in Corporate results related to the change in LIFO inventory valuations partially offset by increased segment operating profit.

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company’s operating results. The global supply chain for soybeans was challenged by lower 2009 South American production. The current improved global crop outlook, coupled with uncertainty about short-term demand resulting from the pace of the global economic recovery, led to lower agricultural commodity market prices and less volatile commodity market conditions. The late, extended U.S. harvest also reduced profit opportunities this quarter. Regional biodiesel markets continued to develop in North America, South America and Europe and increase overall demand for refined and crude vegetable oils. Compared to last year, net corn costs decreased resulting in lower raw material costs for Corn Processing. Lower energy, fuel and chemical costs positively impacted the Company’s manufacturing costs. Ethanol selling prices and volumes increased due to improved gasoline blending economics and higher gasoline prices.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Analysis of Statements of Earnings

Net sales and other operating income decreased 5% to $15.9 billion primarily due to lower average selling prices, in line with lower underlying commodity prices. Increased sales quantities and the impact of foreign currency translation partially offset the impact from lower average selling prices

Net sales and other operating income by segment for the quarter are as follows:

	Three Months Ended
	December 31,
	2009		2008		Change
	(In millions)
Oilseeds Processing
Crushing & Origination	$	3,008	$	2,982	$	26
Refining, Packaging, Biodiesel & Other		1,828		2,264		(436	)
Asia		44		50		(6	)
Total Oilseeds Processing		4,880		5,296		(416	)

Corn Processing
Sweeteners & Starches		818		944		(126	)
Bioproducts		1,211		909		302
Total Corn Processing		2,029		1,853		176