What is a Warehouse Receipt?
A Warehouse Receipt is a document used in futures markets to guarantee the quantity and quality of a particular commodity that is stored within an approved facility. Warehouse Receipts are signed by the warehouse keeper, which guarantees the existence and availability of a specific quantity of a commodity. They are used as an instrument of transfer in cash (spot) and futures transactions.
When working with precious metals, Warehouse Receipts may also be referred to as vault receipts.
When are Warehouse Receipts used?
Warehouse Receipts are used in the instances where a seller forms a contract with a producer, purchasing certain goods that are not in stock, then they use Warehouse Receipts to claim the product at the warehouse.
What’s a practical example of when to use a Warehouse Receipt?
Here’s an example: Let’s say Jake Smith has approached a rice farmer and ordered a large shipment of rice. The rice hasn’t been produced yet, but Smith has already signed a contract with the producer and agreed on a delivery price and quantity for whenever the product becomes available.
Whenever the rice is available, Smith becomes the owner of his purchased amount, but instead of having loads of rice delivered to his store, Smith receives a Warehouse Receipt. The receipt will contain important details about where the rice is stored. Smith can then choose to deliver some or all of the rice to his store. During this process, Smith has to use a Warehouse Receipt as proof of ownership of the product.