Forward Contract

A forward cash contract calls for future delivery of a commodity and agrees to both the futures price as well as the basis for that specific delivery date. The negotiated grade, quantity, delivery location and time are specified and price is set based off a relationship to the appropriate deferred futures contract. This would represent the contract which would be the nearby month during the scheduled delivery period. In contrast to cash contracts, futures contracts are highly standardized with respect to quality, quantity, delivery time, and location. They are considered “benchmark” prices for the particular commodity because they represent the broad value at large, independent of local supply and demand factors.