In the vast majority of situations delivery never takes place and people do
not buy the product using futures. However, I'll throw three instances at
you that I have direct experience with using futures to both market an
actual crop and purchase actual commodities.

Selling corn by committing to a futures contract through a commodity broker
delivered to a terminal on a specific date.

Buying fertilizers, mostly nitrogens, sometimes phosphates, through a dealer
who purchases a futures contract on our behalf with a demand delivery
notification at a certain date.

Buying liquid propane, again through a dealer, who purchases a futures
contract through a broker with demand delivery for specified dates.

The fuel dealers that have adequate storage will also do the same. Usually
you have to commit to 5 semi loads, but they will buy a contract for you,
demand delivery, then inventory the fuel. You pay the contract price, plus
brokerage, plus storage. The larger dairy farms nearby also purchase corn
in this manner.

You're absolutely correct about using futures to lock in the price at a
certain date, however we use it to guarantee delivery at that price when
many of the wholesalers will not step in an guarantee price or availability,
or may not have storage available when we need product.

Jim

wrote in message
oups.com...

Jim Burns wrote:
Sorry, back up.... I misread your answer...

You're correct... but say I pay you $3 per gallon for a September
contract
that climbs to $4 before it settles and goes off the board. I now own
$3
gas but the market is $4 and you owe me either the gas or the price of
the
contract on the contract due date. I may want the gas and you will have
the
obligation to deliver it to the contract location.

Not true. A future is just a bet on the price as I described. It is
the case that the payment may be made in kind if both parties agree.
But there is not obligation make an in kind transaction on either
party.

A consumer buys futures to insure a particular price, not actual
delivery of oil. They have to buy oil directly or indirectly from the
spot market.


My point is that if neither of us have the facilities to handle the
fuel,
neither of us should be in the fuel business.
Jim

"Jim Burns" wrote in message
...
That's an option, not a futures contract.

wrote in message
ups.com...

Jim Burns wrote:
Kind of like the stock market, all on emotion.

I agree. In theory, if you get "caught" owning a futures contract
when
it
closes, you can be forced to take delivery of the actual product.
You
can
also be forced to deliver the actual product.

That is not true. Here is an example of what a future is:

Suppose you and I were neighbors. You pay me $3 if I agree to
pay you the price posted at the local gas station for regular at 9
AM tomorrow.

A future is nothing more than a bet on the future price in the
spot market.

If futures traders were forced
to own facilities to accommodate delivery of the underlying
product,
or
forced to own the product before selling a futures contract, there
would
be
a LOT less speculation.

Jim