Halich, Greg

Walters, Cory G.

English

Research Papers in Economics

ACRE: Probabilistic Approach to Evaluate Farm Payout and Public 
Liability 
Cory G. Walters 
Department of Agricultural Economics, University of Kentucky 
cgwalters@uky.edu 
 
Greg Halich 
Department of Agricultural Economics, University of Kentucky 
greg.halich@uky.edu 
 
 
 
 
 
Selected Poster prepared for presentation at the Agricultural & Applied Economics Association’s 2011 
AAEA & NAREA Joint Annual Meeting, Pittsburg, Pennsylvania, July 24-26, 2011. 
 
 
 
 
 
 
Copyright 2010 by Halich and Walters.  All rights reserved.  Readers may make verbatim copies of this 
document for non-commercial purposes by any means, provided that this copyright notice appears on all 
such copies. 
  ACRE: Probabilistic Approach to Evaluate Farm Payout and Public Liability
By Greg Halich and Cory G. Walters
University of Kentucky
The 2008 Farm Bill created the optional ACRE program 
for grain farmers.  With ACRE, farmers forego traditional 
counter‐cyclical program payments, 20% of their direct 
payments, and 30% of the loan rate in return for 
potential ACRE payments.  ACRE has a revenue 
guarantee that changes each year based on previous 
market and growing conditions.  Basically, the program 
is designed to avoid major reductions in state‐level 
revenue from one year to the next and thus protects 
farmers from significant price and/or production drops.
Objective
The primary objective of this paper is to determine the 
expected ACRE payment using different price 
distribution assumptions.  A secondary objective is to 
compare the public liability of this program compared 
to the traditional counter‐cyclical program with full 
direct payments.
Research Methodology
using simulation techniques whereby parameter 
estimates are drawn from distributions, correlations 
between the parameters are accounted for, and 
expected ACRE payouts are returned in distribution 
form.  Since ACRE only pays when there is a decrease in 
the expected state‐level revenue, it is essentially 
impossible to evaluate this program without a 
probabilistic approach.  Moreover, without a 
probabilistic approach for the program payout, it is 
difficult for farmers to evaluate the risk management 
benefit of the program.
Distribution Corn Price 2010
 
0.000
0.200
0.400
0.600
0.800
1.000
1.200
              
 Mean=3.499998 
2.4 2.95 3.5 4.05 4.6 2.4 2.95 3.5 4.05 4.6
 10%  80% 10%
 2.9749   4.0249 
 Mean=3.499998   Mean=3.499998 
 

ACRE: Probabilistic Approach to Evaluate Farm Payout and Public Liability

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