What is a Warehouse Receipt?
A warehouse receipt is a piece of paper promising that a specific quantity and quality of a particular asset is in a given location.
How Does a Warehouse Receipt Work?
Let's say John Doe buys a coffee futures contract. On October 31, the contract expires and John is the proud owner of a huge amount of coffee. A giant truck does not pull up to John's house and dump Folgers on the front lawn. Instead, John receives a warehouse receipt detailing where the coffee is and that it is in the quantity specified.
If John wants his coffee or wants to sell his coffee, the warehouse receipt will serve as proof that the coffee in the warehouse is his.
Why Does a Warehouse Receipt Matter?
Trading warehouse receipts is much easier than moving loads of coffee, pork bellies, orange juice or gold from place to place. Additionally, if a company has used warehousing financing, a warehouse receipt is evidence of the warehoused collateral associated with the debt.