Demystifying Swaps: Adapting Ag Banking to "Higher for Longer" Rates

How StoneX is empowering community banks to thrive in a rising rate environment

In a compelling cover story for the June 2024 issue of Great Lakes Banker, Josh Cannington, Vice President of Interest Rate Risk Management at StoneX Markets LLC*, unveils how community banks are revolutionizing their approach to agricultural lending in the face of rising interest rates.

The article highlights a Midwest community bank's journey to provide stable, long-term financing to farmers without compromising its own financial health. By partnering with StoneX Markets, the bank implemented a sophisticated hedging strategy using interest rate swaps, allowing it to:

• Offer competitive 15-year fixed-rate loans at rates up to 1% lower than larger competitors
• Transform its balance sheet, converting long-term fixed-rate assets into floating-rate exposures
• Manage interest rate risk effectively while meeting customer needs

"By embracing hedging via interest rate swaps, we were able to fundamentally transform our balance sheet and our business model," reported the bank's leadership team. "It not only improved our financial performance but also allowed us to be more competitive in the marketplace."

The article also features insights from Allen, a seasoned farmer who benefited from this innovative approach. "I had no idea there was a hedging playbook for interest rates," Allen remarked. "Fixed rate swaps, floating rate swaps, options, there's an entire universe of risk management tools we were missing in our operations."

StoneX Markets' expertise in crafting customized hedging solutions, coupled with its commitment to education and training, played a crucial role in the bank's success. This partnership demonstrates how community banks can not only survive but thrive in challenging economic conditions.

Ready to transform your bank's approach to agricultural lending? Read the cover story to learn how StoneX Markets can help you navigate the complexities of interest rate swaps and empower your institution to offer competitive, long-term financing solutions.

*Interest rate swaps are provided by StoneX Markets LLC for eligible contract participants (ECPs).