What is 'In Sight'

In sight describes deliverable grades of commodities held in approved delivery facilities near terminals, centralized locations or production areas.

BREAKING DOWN 'In Sight'

In sight commodities offer holders of futures contracts increased certainty regarding the delivery of the underlying asset, since the quantity and quality of the commodity are easier to determine. Contract holders can assume that delivery of in sight commodities will be prompt, and that the quantity and quality will be precise rather than estimated.

Physical delivery of commodities

Futures contracts typically specify the quantity and quality of a commodity to be sold. The vast majority of futures contracts settle for cash, however, as their holders close out their long or short positions for cash. Nevertheless, futures contracts that involve physical delivery of an underlying asset include a first notice day on which the contract holder must give notice of intent to take delivery of the commodities specified in the contract.

Futures contracts also specify the minimum quantity and quality of the commodity to be delivered. Commodities exchanges produce guidelines outlining the different grades of commodities involved in futures contract exchanges. Inspectors or panels examine the commodities prior to final delivery to ensure they meet the appropriate criteria. Such grades may justify the rejection of a delivery or an adjustment in value if the product arrives in better or worse condition than expected.

The longer the time between the sale of the futures contract and the physical delivery of the underlying commodity, the less visibility a purchaser has into eventual availability of a given commodity in the quality and quantity desired. Futures contracts establish a minimum quality and quantity for each commodity, so closing brokers must match the commodity in the warehouse with the delivery requirements outlined by the contract. Many factors can play into the actual quantities and qualities of a commodity that will ultimately become available for physical delivery. For example, a farmer may commit to selling a certain quantity and quality of wheat long before harvest. Adverse weather, diseases or pest infestations could potentially change the yield or the quality of the final crop. Clearing brokers who must coordinate physical delivery of the commodity cannot know with certainty whether a shipment meets the necessary criteria before it arrives at a delivery facility for grading.

Once the commodity arrives at a facility where experts can grade it and quantify it, futures markets consider it in sight. At that point, clearing brokers have significantly better visibility into the actual quantity and quality of the commodity, as well as an assurance that they can order delivery promptly to fulfill a given contract.

RELATED TERMS
  1. Approved Delivery Facility

    Approved delivery facility is a location authorized by an exchange ...
  2. On Track

    On track is a commodity futures delivery deferred and priced ...
  3. Cash Contract

    A cash contract is a financial arrangement that requires delivery ...
  4. Delivery Date

    A delivery date is the final date by which the underlying commodity ...
  5. Delivery Notice

    Delivery notice is part of a futures contract that spells out ...
  6. Actuals

    Actuals are the physical commodity that underlies a futures contract ...
Related Articles
  1. Investing

    Commodity Investing 101

    From the orange juice we drink to the gas we use to power our vehicles and heat our homes, commodities play important roles in our daily lives.
  2. Financial Advisor

    When Will it Be Safe to Buy Commodities?

    When will it be safe to buy commodities (and which ones)? A closer look at the commodities markets and how they move.
  3. Investing

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  4. Investing

    DBC: PowerShares DB Commodity Tracking ETF

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  5. Investing

    Why Investing in Commodities Can Be Tricky

    While some exposure to commodities can enhance a portfolio, it is key to understand the investment vehicle you've chosen, or you could be in for a rude awakening.
  6. Investing

    Top 3 Commodities ETFs for 2018

    Commodities funds trended down in the first half of 2017 but have been moving up since June. These ETFs could continue their momentum.
  7. Trading

    Futures Fundamentals

    This tutorial explains what futures contracts are, how they work and why investors use them.
  8. Investing

    The Role Of Speculators In The Commodity Market

    Contrary to popular belief, speculators are important for the market. Find out exactly what they do.
RELATED FAQS
  1. How can electricity be traded as a commodity by an individual investor?

    Learn the characteristics unique to electricity trading as a commodity and how investors can trade electricity futures on ... Read Answer >>
  2. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  3. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  4. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
Trading Center