Can a Physically-Settled Contract Be Closed out before Expiration?

Yes, the vast majority of physically-settled futures contracts are closed out (offset) before the final delivery date. A trader can close their position by taking an opposite trade ▴ if they are long, they sell a contract; if they are short, they buy a contract.

This netting process cancels the obligation to deliver or receive the physical asset. Only a small percentage of contracts, typically those held by participants who actually want the physical asset, proceed to the delivery phase.