In 2012, like in the early 1970s, we find ourselves with a drought-reduced corn crop and no reserves to fill in the gap.

And now, for the rest of the story, we have two parts—one demand story and two supply stories.

In the late 1940s, the U.S. accumulated significant grain reserves, and policy makers were looking for ways to reduce them. But before the government could get rid of them, there was a sharp increase in demand. Uncle Sam got involved in the Korean War and needed grain reserves to feed hungry soldiers.

As we noted in last week’s column, we had significant yield and production problems with corn in 1983 and 1988. In 1983, production dropped by 49 percent, yet the total utilization (sum of domestic and export corn uses) declined by only 8 percent. Similarly, in 1988, U.S. corn production declined by 31 percent from the previous year, while total utilization declined by only 6 percent.

In both years, reserves made the difference. In 1983 and 1988, total beginning stocks brought into the marketing years exceeded 3.5 billion bushels with well over half being non-commercial reserves stocks. Today—without such stocks—total utilization must track production declines nearly bushel-for-bushel.

What about the years ahead? Will the shortfalls of 2012 reset corn’s demand base?

Demand destroyed may take make time to reconstruct. In addition, current high prices may trigger increases in production that could result in extremely low prices in the future.

Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). Harwood D. Schaffer is a Research Assistant Professor at APAC. (865) 974-7407; Fax: (865) 974-7298; dray@utk.edu  and  hdschaffer@utk.edu;  http://www.agpolicy.org.