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Deliverable grade

The exact quality specification a commodity must meet to be delivered against a futures contract.

A futures contract is not a claim on "oil" or "wheat" but on a precisely defined product: sulphur content, API gravity, protein level, fineness, moisture, test weight. Anything outside the spec cannot be delivered at par.

This is why futures hedge only part of a real business's risk. A producer of a grade the contract does not cover carries basis-risk between their product and the deliverable one.

Example: CL calls for light sweet crude of 37-42 degrees API and no more than 0.42% sulphur. Heavy Canadian barrels cannot be delivered against it and trade at a discount of their own.

Related: delivery-differential, basis-risk, physical-delivery, contract-specifications

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