Delivering on a Futures Contract Possible, But Not Common

By Betsy Jensen
bjensen@nctc.mnscu.edu

The primary purpose of the futures market is price discovery, and almost all of the contracts bought and sold on the futures market are reowned before contract expiration.  Many commodity contracts are settled by delivery, which means if you hold your contract until expiration, you are responsible for delivering, or taking delivery of that commodity. 

The spring wheat contracts on the Minneapolis Grain Exchange are settled by delivery, so if you hold a futures contract into the delivery period, you may end up with 5,000 bu of spring wheat in Minneapolis/St. Paul or Duluth.  Those are the two delivery points for the spring wheat contracts. The delivery period begins on the last business day prior to the delivery month, so the December contract can be delivered beginning on the last business day of November.  The delivery period begins on the “first notice day.”

Anyone who sells a futures contract has the right to deliver grain, instead of reowning a futures contract. The delivery business isn’t just for big grain companies and processors and farmers have a right to deliver on those contracts. When a contract is delivered, it is the seller who initiates delivery, and buyers must accept delivery.   If you are a farmer and want to deliver on a futures contract, you must have the grain in a “deliverable position.” There are seven companies that have 22 “registered elevators,” which means the elevators have been approved by the MGEX for the delivery process.  The MGEX continually audits these elevators and keeps track of their “deliverable stocks” so grain traders know how little or how much cash grain is eligible to be delivered on the futures market.

When you deliver grain to a registered elevator, you will begin paying a daily storage rate as long as the grain is there.  The MGEX has a maximum storage charge per day that the registered elevators can charge you, and it equates to about $.04/month. You will receive a warehouse receipt for your grain, which is required when you initiate delivery.  The warehouse receipt will list necessary information such as bushels, grade, moisture, and protein. There are specific quality requirements for any spring wheat you want to deliver. The MGEX futures contract is a price for a minimum of #2, northern spring wheat with 13.5% protein.

If you have sold a futures contract and want to deliver, you must have a broker representative at the MGEX. Individuals cannot deliver, but must work through their broker. The broker will notify the clearing department at the MGEX, and they will assign the delivery to the “oldest long.” Someone who bought wheat on May 1 will receive delivery before someone who bought wheat on May 15, and the clearing department at MGEX will make sure all the contracts are correctly assigned.  The clearing department will use information from your warehouse receipt to assign the appropriate grain. 

The futures market is not just for big grain companies and processors, and it’s important that farmers understand all the options available at the Minneapolis Grain Exchange.  Delivering grain on a futures contract is not a common practice for farmers, but it’s available if you ever want to use it. 

Jensen farms with her husband Brian near Stephen, Minn., and is an ag commodity instructor with Northland Community and Technical College, Thief River Falls, Minn.