A term contract is a long-term agreement for commodity delivery or service provision extending beyond spot market transactions, typically ranging from months to years. These contracts provide price certainty, supply security, and operational planning benefits for both buyers and sellers. Term contracts often include volume commitments, pricing formulas, and delivery specifications.

Term contracts help manage supply chain risks and enable long-term business planning by providing predictable costs and revenues. Pricing mechanisms may include fixed prices, escalation formulas, or market-based adjustments. Understanding term contract structures helps assess business risks, financing capabilities, and strategic market positioning.

Real-world example: A power plant signs a 5-year term contract for natural gas supply at Henry Hub plus $0.25 per MMBtu with annual volume commitments of 10 million MMBtu, providing fuel cost certainty for electricity generation planning.