The Soybean Oil futures contract, from CME Group, is universally recognized as an accurate price benchmark and an effective risk management tool for market participants throughout the United States and the world.
As a physically delivered contract, Soybean Oil futures utilize a contiguous delivery system that is centrally located in the major soybean oil production and consumption areas. This enables the contract to accurately reflect the U.S. cash market.
Each contract represents sixty-thousand pounds of crude soybean oil and is settled via physical delivery from approved warehouses located in six territories:
- Eastern Iowa
Each territory has its own delivery differentials that are updated each year based on outstanding deliveries relative to that territory’s soybean crushing capacity. In total, the Soybean Oil futures contract has over 1.5 billion pounds, which is approximately 24,980 contracts, of approved delivery capacity.
While not a substitute for cash market trade, the soybean oil physical delivery system performs the function of assuring efficient cash-futures convergence and that an effective forward curve is discovered to assure soybean oil is efficiently allocated through time.
Like other physically delivered futures contracts, actual delivery is rare. However, when trading the Soybean Oil futures contract, traders need to be aware of the delivery process as it can affect pricing and price relationships ‒ making any market user a more effective trader.
The delivery instrument for Soybean Oil futures is an electronic warehouse receipt generated in the CME Group delivery system. Each Soybean Oil warehouse receipt conveys ownership to the receipt holder of 60,000 pounds of crude soybean oil in the issuing warehouse. Warehouse receipts are created by warehouses that have been approved by the Exchange.
The first delivery day of an expiring contract is the first business day of the contract month. The last trading day for the Soybean Oil futures contract is the business day preceding the 15th calendar day of the contract month and last delivery day is seven business days following the last trading day.
If a firm decides to make or take delivery against a futures position, a three-day delivery process will follow:
Day one – Intention or position day
The holder of a short futures position, also referred to as “the short”, initiates delivery by having its clearing firm notify the Exchange before 4 p.m. that they want to make delivery. Holders of long futures positions, known as “the longs”, are ranked according to the amount of time they have held the long futures position, with the oldest ranked first.
Day two ‒ Notice day
The oldest long position holder is notified by the Clearing House that delivery will take place and invoices are provided to the long and short clearing members.
Day 3 ‒ Delivery day
The warehouse receipt is delivered to the long and the long makes payment through the Exchange delivery system during the 6:45 a.m. collection cycle.
A firm has multiple options if they acquire a warehouse receipt through the futures delivery process.
They may choose to:
- Carry the receipt and pay a storage charge to the issuer of the receipt – this is approximately $90 per contract per month.
- Sell the warehouse receipt to someone else at a negotiated price. This is typically transacted through their respective clearing firms.
- Redeliver the warehouse receipt by selling a futures contract and initiating delivery of the warehouse receipt to a new owner. This can occur on the current contract, if it has not expired, or on a more distant contract expiration when it goes into its delivery process.
- Request load out.
Load out of physical soybean oil may be completed via rail tank car or truck at any time. Procedures are in place to address logistics, grading, and final invoicing for all load outs.
Warehouse receipts do not expire and there is no limit on how long an owner can carry them. Owners of outstanding warehouse receipts pay storage each month through the Exchange’s delivery system.
A daily record of outstanding warehouse receipts is available each trading day in the Deliverable Commodities Under Registration report available on cmegroup.com.
Full details and official regulatory guidance for the Soybean Oil delivery process can be found in Chapter 12 of the CBOT Rulebook available on cmegroup.com. Additional information on the soybean oil delivery process can be found here.
When trading Soybean Oil futures, it’s important to understand the delivery process as it can impact the price of the contract.
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