What is Spot Delivery Month?
In the commodity futures markets, the spot delivery month is the earliest possible month in which the commodity underlying the futures contract will be deliverable. It is also known as month near or month ahead.
The opposite of the spot delivery month is the month backwhich refers to the last month in which the goods can be delivered based on current trading.
Key points to remember
- The spot delivery month is the first subsequent month in which a commodity futures contract is eligible for delivery.
- This is usually the most actively traded month for a given futures contract.
- Commodity regulators pay particular attention to trading during spot delivery months, to avoid excessive speculation or price distortions.
Understanding Spot Delivery Month
The commodity futures market is an important and important part of modern financial markets. Through this marketplace, business customers who rely on goods in their operations can source supplies efficiently and plan ahead for the months of production ahead. At the same time, financial buyers can use the commodity futures market to speculate on commodity prices or engage in other activities such as risk coverage.
When a trader buys a commodity future contracts, they assume the obligation to receive a specific quantity of the goods during the delivery month of this contract. Similarly, the seller of the contract assumes the obligation to physically deliver this commodity. As the delivery date approaches, futures traders who do not actually wish to physically receive or deliver the commodity can unwind their position by buying or selling offsetting positions. If they do not do so in time, they may be required to effect or take delivery of the goods.
The spot delivery month is the most important month in any commodity futures market, as it is used to determine the spot price of this commodity. Since the spot delivery month is the closest to the present, it is the most recent month from the perspective of buyers and sellers who wish to unwind their positions in order to avoid making or take a physical delivery. For this reason, commodity exchange regulators such as the Commodity Futures Trading Commission (CFTC) pay close attention to trading activity during the month of spot delivery, limiting trades to avoid excessive speculation or price distortions.
Concrete example of a month of on-time delivery
To illustrate, consider the case of orange juice futures. The delivery months for these contracts are February, March, May, July, September and November. In contrast, fuel oil futures contracts can be written to expire any month of the year.
Therefore, in the case of a trader buying an orange juice futures contract in January, the spot delivery month would be February. In the case of fuel oil futures, a trader who bought their contract after the November delivery date would have December as the spot delivery month.