Commodity futures contracts refer to standardized agreements between two parties, typically a buyer and a seller, to buy or sell a specific commodity at a predetermined price, quantity, and delivery date in the future. Commodity futures contracts are traded on organized exchanges and are a popular investment vehicle for individuals and institutions looking to invest in the commodities market.

In a commodity futures contract, the buyer agrees to purchase a specific quantity of the underlying commodity at a specified price and delivery date. The seller, in turn, agrees to deliver the commodity at the specified delivery date for the agreed-upon price. The price of the commodity futures contract reflects the current market price of the underlying commodity, as well as the expected supply and demand for the commodity in the future.

Commodity futures contracts can be used for hedging or speculation purposes. Hedgers, such as farmers or manufacturers, use futures contracts to lock in a price for their future production or to protect against price fluctuations. Speculators, on the other hand, trade futures contracts in the hopes of making a profit by buying low and selling high.

Futures contracts are settled on the specified delivery date, with the delivery of the actual commodity taking place if the contract is not offset by a corresponding transaction. However, most futures contracts are closed out before the delivery date, as most traders are not interested in taking physical possession of the commodity. Instead, they buy or sell futures contracts to profit from price movements in the underlying commodity.