What Is a Delivery Date?
A delivery date is the final date by which the underlying commodity for a futures or forward contract must be delivered for the terms of the contract to be fulfilled. Most futures contracts are used as a hedge to reduce the risk of adverse price movements in a commodity and are closed out with an offsetting position (selling to offset a long position and buying to offset a short position) before the actual delivery date.
Delivery Dates Explained
All futures and forward contracts have a delivery date upon which the underlying commodity must be transferred to the contract holder if they hold the contract until maturity instead of offsetting it with an opposing contract.
According to John Hull, author of Options, Futures and Other Derivatives, a futures contract is referred to by its delivery month. The exchange where the futures contract is traded must specify the precise period during the month when delivery can be made. For some futures contracts, the delivery period is the whole month, while for others it is a specific date. The delivery months vary from contract to contract and are chosen by the exchange to meet the needs of market participants. At any given time, contracts usually trade for the closest delivery month and a number of subsequent delivery months. The exchange specifies when trading in a particular month's contract will begin. Trading generally stops a few days before the last day on which delivery can be made.
The main delivery months for some commodities, like corn futures, are March, May, July, September, and December. These contracts are coded by the exchange such that the last two symbols denote the month and year of the delivery date. For example, a contract with a delivery date of March 2019 would have the code XXH9. Other monthly delivery symbols are June (M), September (U), and December (Z), followed by a number that represents the delivery year.
Delivery Date Differences for Futures and Forwards
Forward contracts differ from futures contracts because forward contracts are not traded on a registered exchange. Instead, forward contracts trade in the over-the-counter market and vary more than standardized futures contracts. In this way, the delivery date of a forward contract is subject to negotiation and can be tailored to the needs of both the seller and buyer. Another important difference is that the underlying commodity of the forward contract tends to be delivered more often than with futures contracts. Futures contracts are used primarily to hedge price movements and are closed out prior to delivery. Forward contracts are more often used by commodity users and producers to remove price uncertainty when actually taking delivery of the underlying commodity.