Why do futures exist?

Before futures, farmers and grain buyers locked in prices with handshake forward contracts. The problem: if prices crashed, the farmer was tempted to walk. If prices rallied, the buyer was tempted to walk. There was no mechanism to make sure either side honored the deal.

The Chicago Board of Trade, founded in 1848, fixed that by standardizing the contracts and putting a clearinghouse in the middle. The exchange guaranteed performance, required both sides to post collateral, and made the contracts identical so they could trade hands freely. That architecture hasn't changed much in 175 years.
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What does "standardized" mean?

When you sell a futures contract, you're not negotiating the details. The exchange has already done that for you. Every contract for a given commodity specifies:
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Quantity. One corn contract is 5,000 bushels. One canola contract is 20 metric tonnes. You trade in whole units.
‍Quality. A deliverable grade is specified — #2 Yellow for corn, Canada #1 for canola. Off-grade grain takes a discount.
‍Delivery month. Corn trades March, May, July, September, and December. Canola trades January, March, May, July, and November.
‍Delivery location. Specific approved facilities — Illinois River terminals for corn, primary prairie elevators for canola.

That standardization is what makes contracts liquid. Because every December corn contract is identical to every other December corn contract, you don't have to find a specific buyer for your specific bushels, you sell into the market and someone picks it up.

What happens when a futures contract expires?

Every futures position closes one of two ways.

Physical delivery - you deliver the actual grain against the contract at an approved facility. This is rare. Less than 2% of agricultural futures contracts go to physical delivery. The system exists mostly to keep futures and cash prices honest with each other.

Offset - far more common. If you sold a December corn contract in May, you close the position by buying a December corn contract back before delivery. The two cancel out, and your profit or loss is the difference between the price you sold at and the price you bought back at. No grain changes hands on the exchange. You sell your actual crop separately into the cash market, the way you always have.
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Who is on each side of the contract?

Futures market needs someone willing to take the other side of your trade. There are two groups doing that.

Hedgers are commercial participants, farmers, elevators, processors, ethanol plants, feed yards, exporters. They use futures to manage real price exposure tied to physical commodities. A farmer selling December corn is hedging. So is a cereal company buying it.

Speculators have no underlying physical position. They're in the market to profit from price movement. Farmers sometimes view speculators with suspicion, but the market depends on them. Hedgers tend to lean the same direction at the same time, producers want to sell when end-users aren't yet ready to buy. Speculators fill that gap and provide the liquidity that lets a hedger get filled at a fair price.

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