Physical Delivery in Depth: Shipping Certificates, Warrants, EFPs and the Delivery Notice Process

Physical delivery is the process by which a futures contract still open after trading ends is settled by transferring the commodity itself, almost always as a document of title: a shipping certificate for grain, an electronic warrant for gold, or scheduled pipeline flow for natural gas. The short decides when to deliver within the delivery period, the clearing house assigns the delivery to the long holding the oldest position, and the long pays an invoice adjusted for grade, location and accumulated storage charges.

In short: for CBOT grains, delivery runs on a three-day cycle (position day, notice day, delivery day) repeated through the delivery month, governed by CBOT Rule 713. The instrument delivered is usually a shipping certificate, an obligation of an exchange-approved facility to load out grain on demand, backed by collateral. For COMEX gold, the instrument is a warrant, a document of title under Article 7 of the Uniform Commercial Code for specific bars in an approved depository. Most commercial participants never go through this: they close positions or use an exchange for physical (EFP) under CME Rule 538, swapping futures for a matching physical deal on their own terms. Delivery still matters to everyone, because the right to deliver is what forces futures and cash prices to converge.

This article goes beyond the overview in physical vs cash settlement, using the exchange rule texts filed with the CFTC.

A common misconception: “delivery is rare, so it doesn’t matter”

It is true that only a small share of open interest ever delivers. FERC observed in its 2007 Amaranth order that the vast majority of natural gas futures contracts do not go to delivery, and the same is true across commodities. But the price of every contract in the final weeks before expiry is set by the threat of delivery. If corn futures traded well above the cash value of corn sitting in a delivery warehouse, a merchant could buy the cash grain, register it, sell futures and deliver. If futures traded well below, a long could take delivery and sell the grain. The delivery mechanism is the arbitrage that anchors the contract; when it is badly designed, futures stop converging, which is exactly the problem several of the rule changes below were made to fix.

Delivery instruments: what actually changes hands

Instrument	Used in	What it is
Shipping certificate	CBOT corn, soybeans, soybean products, and others	A facility’s obligation to load out a specified quantity of grain to the holder, on demand, at a defined rate
Warehouse receipt	Some CBOT and other contracts	A receipt for a specific lot stored in a regular warehouse
Warrant	COMEX and NYMEX metals	A document of title to specific bars or lots held in an approved depository
Pipeline delivery	NYMEX Henry Hub natural gas	Scheduled flow (or displacement) into the buyer’s interconnection over the delivery month

CBOT’s Chapter 7 (as filed with the CFTC in 2018) spells out what backs a shipping certificate. The electronic certificate obligates the regular facility, once properly endorsed and subject to a lien for premium or storage charges, to deliver the specified quantity of grain meeting exchange standards, by water, rail or truck as the contract chapter specifies. Because the facility may not hold the actual grain at that location yet, the issuer must post collateral with the exchange: cash, a letter of credit naming Chicago Mercantile Exchange Inc., U.S. Treasury securities, or USDA warehouse receipts, for 110% of the current market value of certificates issued, topped up whenever it falls below 100%, valued at the front-month settlement price.

When a certificate holder cancels it and submits loading orders, Rule 703.C requires the facility to start loading out on the third business day after receiving the orders, or one business day after the conveyance is placed, whichever is later, and to keep loading at the minimum rates set for each location.

The CBOT three-day delivery process: Rule 713

CBOT Rule 713, from the same Chapter 7 filing, sets out the cycle:

Position day (also called intention day). A short who intends to deliver tenders a delivery notice to the clearing house, by 4:00 p.m. on position day. Clearing members must report their long positions eligible for delivery, with the dates those positions were opened, by 8:00 p.m.
Notice day. The clearing house assigns each delivery to clearing members holding the oldest long positions. Clearing members in turn assign deliveries to the oldest open contracts on their books as of the close on position day. The seller prepares an invoice for each assigned buyer, adjusted for premiums, discounts, storage and premium charges and quantity variations, and submits it to the clearing house (by 10:00 a.m. for products on the electronic delivery system).
Delivery day. The buyer pays the invoice in same-day funds and the delivery instrument is transferred.

Rule 713 also states that a clearing member with both long and short positions on its own books must still tender its shorts’ notices to the clearing house; it cannot pair off its own customers internally.

Two rules close the loop:

Duties of clearing members. Before the last trading day, each clearing member must assess whether each account with an open position in the expiring contract can make or take delivery. Absent satisfactory information, the clearing member must make sure the position is liquidated in an orderly way before trading ends. This is the rule behind brokers’ early liquidation deadlines.
Failure to deliver (Rule 714). If a clearing member fails to deliver, the clearing house’s sole obligation is to pay reasonable damages, capped at the difference between the delivery price and the reasonable market price at the time. The clearing house will not deliver or accept the commodity itself and does not guarantee the genuineness of warehouse documents. Its guarantee is financial, not physical.

Worked example: the December 2026 corn calendar

Applying CBOT’s date definitions (first position day two business days before the first delivery day; first notice day one business day before; last trading day the business day before the 15th of the month; last delivery day two business days after the last trading day) to December 2026 corn, with Thanksgiving on November 26:

Date	Event
Friday, November 27, 2026	First position day: shorts can declare intent; longs still holding at the close can be assigned
Monday, November 30, 2026	First notice day: first delivery notices reach longs
Tuesday, December 1, 2026	First delivery day
Monday, December 14, 2026	Last trading day
Wednesday, December 16, 2026	Last delivery day

Because the cycle repeats every business day, a long who holds into the delivery period can be assigned on any day of it, at the short’s choice. Check CME’s official calendar; holidays and rule changes can shift these dates.

The corn contract and its invoice

CBOT’s corn contract (Rulebook Chapter 10) is for 5,000 bushels. The grade and location terms, as amended in CBOT Submission 15-485 for March 2019 and later contracts (a 2017 amendment, Submission 17-288, extended the corn delivery territory down the Illinois River to Havana-Grafton and the St. Louis area from the same date):

Grade differentials (Rule 10104)

Grade	Price versus contract
No. 1 yellow	1.5 cents per bushel over
No. 2 yellow	Par
No. 3 yellow, broken corn and foreign material only	2 cents under
No. 3 yellow, damage only	2 cents under
No. 3 yellow, both	4 cents under

Location differentials (Rule 10105)

Shipping district	Price versus contract
Chicago and Burns Harbor, Indiana	Par
Lockport-Seneca	4.75 cents over
Ottawa-Chillicothe	6.25 cents over
Peoria-Pekin	8.75 cents over
Havana-Grafton	10.25 cents over

CBOT’s filing explains why: differentials along the Illinois River reflect barge freight to the Gulf, and the old schedule, based on 110% to 120% of barge tariff rates, had fallen behind actual rates, which regularly exceeded 120%. Deliveries had concentrated in Chicago, Burns Harbor and the northern river. The new schedule reset differentials to 325% of tariff.

Premium charges (Rule 10108). The holder of a shipping certificate pays the issuer a daily storage-like premium charge. Under CBOT Submission 18-314R, the maximum for corn rose from 16.5/100 to 26.5/100 of one cent per bushel per day, effective December 19, 2019, about 8 cents a bushel a month. Certificates are only valid for delivery if premium charges have been paid up to and including the 18th calendar day of the preceding month; any unpaid charges after that are credited by the seller to the buyer up to and including the delivery date. CBOT said the increase was meant to align futures storage rates with cash market rates and improve convergence.

Worked example: a delivery invoice

Illustrative prices; real rule terms.

Contract: one December 2026 corn future.
Delivery price (the settlement price the clearing house uses for invoicing): $4.4525 per bushel.
Certificate: No. 1 yellow corn, Peoria-Pekin shipping district.
Delivery day: Thursday, December 3, 2026.
Premium charges paid through November 18, so 15 days (November 19 through December 3) are unpaid.

Line	Calculation	Amount
Base value	5,000 x $4.4525	$22,262.50
Location premium, Peoria-Pekin	5,000 x $0.0875	+$437.50
Grade premium, No. 1 yellow	5,000 x $0.015	+$75.00
Gross invoice	5,000 x $4.555	$22,775.00
Unpaid premium charges credited to buyer	5,000 x $0.00265 x 15 days	-$198.75
Amount the long pays		$22,576.25

For comparison, the same delivery of No. 2 corn from Chicago would invoice at $22,063.75 after the same credit, and No. 3 corn with both grade defects at $21,863.75.

From the next day, the long owes premium charges to the issuer: 5,000 x $0.00265 = $13.25 a day, or $397.50 per 30 days, about 7.95 cents a bushel. The long now has three choices: hold the certificate and keep paying, redeliver it against a futures sale, or cancel it and load out grain from the river, which requires barge freight and a buyer. This cost is why holding a certificate is economically the same as owning stored grain, and why calendar spreads in grain rarely trade beyond “full carry”, the cost of storage plus financing. Grain spreads and carry are explored in futures spread trading.

Who delivers what: the seller’s option

The short chooses not only when to deliver but, within the rules, which grade and which location. A rational short delivers whatever is cheapest to deliver relative to the invoice it receives. Differentials are an exchange’s attempt to make the options roughly equal; when they drift from the cash market, deliveries pile up at one location or grade, and the futures price converges to the value of the worst deliverable. The same logic in bond futures is covered in Treasury futures and the cheapest to deliver.

COMEX gold: warrants and depositories

COMEX Gold futures (Chapter 113, as amended in COMEX Submission 25-128 effective May 5, 2025) call for 100 troy ounces of gold, with a 5% weight tolerance either way, assaying at least 995 fineness, of a brand approved by the exchange. A delivery unit is either one 100-ounce bar or three 1-kilogram bars. The rule requires:

Bar markings: weight, fineness, bar number, brand mark and, for bars produced from January 1, 2026, the month and year of production, incised on the bar.
Weights: grams convert to troy ounces at 31.1035 grams per ounce; the depository weighs each 100-ounce bar to 1/1000 of a troy ounce.
Warrants: each warrant references the serial number and producer of each bar.
Chain of custody: gold must arrive at an approved depository by an approved carrier, directly from an approved producer, an approved assayer (with assay certificate), or another approved depository.

The NYMEX/COMEX Rule 705.A in the same filing defines a warrant as a document of title under Article 7 of the Uniform Commercial Code, issued in the name of the clearing member that holds it.

Worked example: what a gold delivery invoices

Illustrative price of $4,000 per troy ounce:

Delivered unit	Weight (troy oz)	Invoice at $4,000
One bar of exactly 100.000 oz	100.000	$400,000.00
One bar of 100.425 oz (inside the 5% tolerance)	100.425	$401,700.00
Three 1-kilogram bars (3 x 32.15072 oz)	96.452	$385,808.67

The invoice follows the delivered weight shown on the warrant, so a long cannot know the exact amount until the bars are assigned. Taking delivery leaves the long holding a warrant for metal in a depository, paying storage, insurance and eventually handling or transport costs to move it. How gold futures relate to spot and to the London market is covered in gold futures explained.

Exchange for physical: CME Rule 538

Most commercial hedgers do not want the exchange’s standard grade, location or timing. They use exchange for related positions (EFRP) transactions. The text of CME Rule 538, as filed with the CFTC in August 2020 and common to CME, CBOT, NYMEX and COMEX, defines three kinds:

EFP: an exchange futures contract against a corresponding physical transaction or forward contract.
EFR: a futures contract against a corresponding OTC swap or other OTC derivative.
EOO: an exchange option against a corresponding OTC option.

Key requirements:

Rule	Requirement
538.A	One party buys the futures and sells the related position; the other does the opposite. Both legs must be for accounts with the same beneficial ownership
538.B	Opposing accounts must be independently controlled; with common ownership, the parties must show independent control and economic substance
538.C	The related position must be the cash commodity, a by-product, a related product or an OTC derivative with reasonable price correlation; not a futures or option on futures. Each EFRP requires a bona fide transfer of ownership or a legally binding contract, and may not be contingent on another transaction that offsets it without material market risk
538.D	Inventory financing: a financier can buy a storable commodity and sell futures by EFP, granting the counterparty a right to reverse with a second EFP later
538.E	Quantities must be approximately equivalent; hedge ratios may be used
538.F	Prices must be commercially reasonable and may not be used to transfer funds for any purpose other than legitimate commercial activity
538.G	Some contracts allow EFRPs for a defined period after trading ends, only to liquidate positions
538.H	Records of both legs, including payments and transfer of title, must be kept and provided on request
538.I	Submission to the clearing house must show the correct type and the time terms were agreed; the trade is not accepted until it clears and the first settlement variation and margin are confirmed

Block trades and EFRPs, and the enforcement cases around them, are a separate topic covered in block trades and EFRPs.

Worked example: an EFP between a merchant and a processor

Illustrative prices; real mechanics.

A grain merchant bought 100,000 bushels from farmers and hedged by selling 20 March 2027 corn futures at $4.70.
An ethanol processor needs 100,000 bushels delivered to its plant and hedged by buying 20 March futures at $4.30.
In January they agree a physical sale: 100,000 bushels delivered to the plant at March futures + 18 cents, and they fix the futures leg of the EFP at $4.50.

The EFP does two things at once. The merchant buys 20 futures from the processor at $4.50, closing its short; the processor sells 20 futures to the merchant at $4.50, closing its long. The cash price is $4.50 + $0.18 = $4.68 a bushel, or $468,000.

	Merchant	Processor
Futures P&L	($4.70 - $4.50) x 100,000 = +$20,000	($4.50 - $4.30) x 100,000 = +$20,000
Cash transaction	Sells at $4.68	Buys at $4.68
Effective price including hedge	$4.88 received	$4.48 paid

Both effective prices equal the futures price each side locked in when hedging, plus the agreed 18-cent basis. The futures level chosen for the EFP ($4.50) shifts money between the futures and cash legs but not the net, which is why Rule 538.F requires prices to be commercially reasonable rather than arbitrary. The grain moves to the processor’s plant, on the processor’s schedule, with no shipping certificate involved. This is how most hedges in physical markets actually end.

Natural gas: delivery as pipeline flow

NYMEX Henry Hub natural gas shows a different design. There is no certificate: after trading ends, three business days before the delivery month, open positions settle by gas delivered at a steady rate through the month to the buyer’s interconnection at the Henry Hub. NYMEX Rule 220104, amended in 2016, says delivery occurs when gas passes the buyer’s interconnection point “via physical flow or displacement”, and that the Hub’s intra-hub transfer service counts as an acceptable interconnection. One contract held into delivery means about 322.6 MMBtu a day for a 31-day month. The market’s other mechanics are in natural gas futures in depth.

What can go wrong

Holding a long past first position day. The clearing house can assign a delivery on any business day of the delivery period, at the short’s choice, and payment is due in same-day funds.
Forced liquidation. Clearing members must liquidate positions whose owners cannot show they can make or take delivery, which can mean exiting at an unfavourable price near expiry.
Getting the worst deliverable. Shorts deliver the cheapest grade and location the rules allow, and the invoice adjusts by fixed differentials, not by the actual cash value of that grade or place.
Carrying costs. A shipping certificate costs $397.50 per contract per 30 days in premium charges at the corn maximum. A warrant brings storage and insurance.
Load-out queues. Cancelling a certificate starts a load-out that begins days later and depends on the facility’s rate and conveyance availability.
Limited guarantees. Under Rule 714, the clearing house pays capped damages if a delivery fails; it does not deliver the commodity.
Squeezes. When deliverable supply is small relative to open interest, a dominant long can push the expiring contract away from the cash market. Position limits and accountability exist for this reason; the Hunt brothers’ attempt to corner silver in 1979 and 1980 is the classic case.
Running out of storage and time. The negative WTI settlement of April 2020 is the extreme example of what happens when holders of a physically delivered contract near expiry have nowhere to put the commodity.

The short version

Physical delivery turns an expiring futures position into a document of title: a collateralised shipping certificate in grain, a UCC warrant for bars in a depository for gold, or scheduled pipeline flow for gas. At CBOT the process runs on a repeating three-day cycle under Rule 713, with shorts choosing the day and the clearing house assigning the oldest longs. Invoices adjust for grade, location and premium charges; in our December 2026 example a Peoria-Pekin delivery of No. 1 corn came to $22,576.25 after crediting $198.75 of unpaid premium charges, and holding the certificate then cost $13.25 a day. Most commercial positions end instead through EFPs under CME Rule 538, which let two hedgers swap futures for a real cash deal on their own terms. Few contracts deliver, but the right to deliver is what makes futures converge to cash. This is a description of mechanisms, not a suggestion to hold positions into delivery.