The Reagan administration farm surplus reduction program will allow some large cotton growers in the West almost to triple 1983 profits to more than $1 million per farm, according to the nation's leading producers' group.
The prospect of a bonanza for farmers who take surplus federal cotton as payment-in-kind for not planting is outlined in an economic outlook paper circulated by the National Cotton Council.
By this estimate, a high-yield, 5,000-acre farm in California or Arizona could make at least $1 million in profit by joining the program, compared with the $368,000 it would earn by remaining in full production.
A 500-acre cotton farm in lower yielding areas of the South, the study showed, could make $68,000 profit by enrolling, compared with the $29,000 it could make by staying out.
Council economists concluded that the profit estimates make "a strong case" for participating in the federal giveaway announced last month by President Reagan. The payment-in-kind (PIK) program is designed to reduce surpluses of wheat, corn, sorghum, rice and cotton, and improve prices in the hard-hit farm economy.
By slowing production, the government also hopes to reduce its bills for acquiring and storing surplus commodities.
Although potential profit for growers of other crops is less clear, the council's cotton data underscores Agriculture Secretary John R. Block's belief that the PIK program could not succeed unless made sweet enough to attract farmers.
Farm organizations and farm state legislators generally have supported the program, agreeing with Block's assessment that, while it contradicts his free market philosophy, it is the only workable tool to bring supply back in line with slumping demand.
But some legislators, among them Rep. Thomas A. Daschle (D-S.D.), have complained that PIK is too generous. "Generous?" one congressional aide asked last week. "Can you imagine how the Republicans would have climbed the walls if Bob Bergland Block's Democratic predecessor had proposed this PIK program? "
Although they provide no figures, Department of Agriculture officials say farmers have been signing up briskly, with a flurry expected as the March 11 deadline nears.
A farmer may elect not to participate in any federal programs. If he wants to participate, he could choose either USDA's 20 percent acreage reduction program or the PIK, which would remove half of the farm from production.
A PIK participant who agrees not to plant on up to 50 percent of his land will be given a commensurate amount of federal surplus, which he can then use or sell.
Cotton farmers, for example, will get 80 percent of the crop they would have expected to grow. That is, a farmer who might have produced 500 bales of cotton would get 400 bales from federal stocks.
Percentages are the same for other PIK crops except wheat, which is 95 percent. The more attractive wheat figure was chosen because winter wheat, about three-fourths of the U.S. crop, had been planted by the time Reagan announced the program. The cotton council's calculations show that, even with 80 percent payment-in-kind, there is big profit potential in PIK.
A farmer's production costs go down by about half, he still receives a direct cash subsidy of up to $50,000 in "deficiency" payments and he can sell the PIK cotton that he did not grow.
The high profit potential for the big growers in the West is related to far higher per-acre yields, achieved through irrigation and a longer growing season. Their size, the demand for their top-quality fiber and federal regulations in the past have discouraged participation in acreage reduction programs.
Last year, for example, only half of the planted acres in the West were enrolled in USDA's limited acreage reduction program. But a USDA waiver of the $50,000 subsidy limit, decreeing that commodities are not the same as cash, is expected to draw more acreage into the PIK program.
The big western farmers could profit in another, unanticipated way from the PIK program. Heavy rain and snow melt already have flooded thousands of acres in California and the situation is expected to worsen, precluding considerable cotton planting.
But the PIK formula is based on past years' acreage averages, so those farmers facing inundation and probable income loss will be able to receive PIK cotton as if they had intended to plant in 1983.
The PIK program, particularly as it applies to the West, is not entirely popular with the cotton industry.
The American Cotton Shippers Association, for example, has complained to Block and to Congress that the PIK will disrupt the market.
In a recent letter to Block, Samuel T. Reeves of Fresno, president of the association, said that the in-demand "Acala" type cotton grown in the San Joaquin Valley should not have been included in the PIK.