Why Might a Commodity Producer Prefer Physical Settlement?

A commodity producer, such as a farmer or a gold miner, prefers physical settlement because they have the underlying asset (the commodity) as a natural output of their business. They can use the futures market to lock in a selling price for their future production and then fulfill the contract by delivering their physical output directly.

This integrates their hedging strategy with their operational sales process, eliminating the need to separately sell the commodity on the spot market and settle a cash futures contract.