Average Crop Revenue Election (ACRE) Program or Traditional Government Payment Programs: What Factors Matter?

Rankings of different risk management portfolios including Average Crop Revenue Election (ACRE), traditional government payment programs, crop insurance and hedging in futures; and optimal choices of insurance coverage levels and hedge ratios are evaluated for a representative central Indiana corn farm, using Monte Carlo simulation and optimization of expected utilities. The changes of preference between ACRE and traditional government programs under comprehensive scenarios of price and yield risks are studied. Also, Interactions between ACRE and other risk management instruments are examined, and government costs and risk management efficiencies between ACRE and traditional government programs are compared. The results show a strong preference of ACRE for the representative central Indiana corn farm in 2009, due to high ACRE guarantee price and expected drop in corn price from 2008 level. Even if the farm faces weak dependence between farm and aggregate yield, the risk could not offset the addition value ACRE could provide for this year. Also, it is found that there are synergistic effects between ACRE and two individual crop insurance plans but antagonistic effects between ACRE and group insurance plans. ACRE is more efficient than traditional government programs in terms of expected program costs.