Could prices drop back to the previous $2.00+ plateau? The answer to that question depends on how one interprets history. It is well and good to draw a parallel to the move from the $1.00+ plateau for corn to the 2.00+ plateau, but in doing so one must ask what made the new level stick? Our read of the history suggests that the new plateau stuck because of the 1977 increase in the non-recourse loan rate, thereby setting a limit to how far the price of corn could fall.
After the 1996 Farm Bill effectively eliminated the use of any reserve program through the use of the marketing loan program, we saw four consecutive years of sub-$2.00 corn prices. As for the contention that higher production costs will do the trick, it did that not work in the 1998-2001 period when the government backfilled farm income with tens of billions of dollars in government payments.
This time around, there is no price safety net to make a new higher price plateau stick. Furthermore, if prices fall well below the total cost of production and stay there for several years, revenue insurance will be of little value as an income safety net for crop farmers as well.
Source: Daryll E. Ray and Harwood D. Schaffer, Agricultural Policy Analysis Center, University of Tennessee