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The shipping certificate is a document that serves as a negotiable instrument in deals involving futures exchanges. Certificates of this type are issued by facilities that are approved by the exchanges involved, and serves as a means of confirming the commitment of the facility to deliver the commodity identified in the document to the certificate holder in accordance with the terms specified within the shipping certificate. Shipping certification is often utilized with commodities like wheat, corn, soybeans and even products like plywood.
One of the characteristics that makes the shipping certificate a little different from other types of guarantees of delivery is that the document does not require the approved delivery facility to actually store the commodity until the delivery date arrives. This provides the opportunity for the delivery to be fulfilled with the use of future production of the commodity, with harvesting taking place shortly before the futures date, and allowing the commodity to be transported to the shipping certificate holder in a timely manner.
This is in contrast to a similar document that is sometimes used with futures investments, known as the warehouse receipt. In this situation, the facility does store the commodity until the day it is to be delivered to the holder of the receipt. The commodity is actually in hand at the time the futures contract is created, remains in storage for the life of the contract, and is shipped to the location supplied by the investor on the agreed upon delivery date.
One of the benefits associated with commodities investments that make use of the shipping certificate is that there is no need for the commodities to actually exist at the time the futures contract is created. The contract may be based on the projected amount of the commodity that will be produced by the delivery date. For example, if an investor anticipates that the demand for corn will substantially increase at a certain point in the future, he or she may create a futures contract for the commodity, effectively purchasing the commodity at a lower price today, and delaying delivery until after prices have increased substantially. This allows the investor to forego any warehousing costs that would possibly cut into the profits, while still earning a return from the increased demand. As with any investment strategy, if the projection for increased demand is inaccurate, the investor could become the owner of a commodity that is worth less than the futures price that was named in the contract, and sustain a loss instead of posting a profit.
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