Bad weather, rising prices, heavy demand and diminishing supplies have combined to put thousands of cotton farmers in danger of losing money because of the federal payment-in-kind (PIK) program that was supposed to bail them out.

Farmers hoping to take advantage of prices that have climbed this year from the 55-cents-per-pound range to about 80 cents now are being told that they will have to lend part of their crop to the government--at 55 cents a pound--so that the Department of Agriculture will have enough cotton to cover its PIK needs.

That is, the government is making them lend it part of their crop so it will have enough cotton to give them as their compensation--for not growing more cotton. Got it?

By some estimates, farmers in the tightest situations could lose as much as $2,000 per acre because of the USDA's insistence that they put a portion of their crop on loan to help make up the department's PIK shortfall that could reach 1 million bales.

The USDA is giving surplus grain and cotton to farmers for idling part of their crop land this year to bolster prices, reduce supplies and prop up the lagging farm economy. But a huge response by cotton farmers, who cut plantings by 46 percent to around 8 million acres--the lowest level in a century, caught the department short of PIK cotton.

Moves by the USDA to make up the unexpected PIK deficit have drawn sharp protests from farmers, processors, shippers and members of Congress, and have created political trouble for the White House in southern and western cotton states. "This administration is worried about losing the southern black vote," said one cotton lobbyist, "but now they're about to blow the southern white vote if they don't turn this thing around."

The first to be hit by the department's policy would be farmers in Texas' lower Rio Grande valley, who are scheduled to get their PIK cotton July 15. Assured by the USDA that new crop cotton would not be needed to meet PIK demands, they signed contracts to sell about three-fourths of their 1983 crop as well as the cotton they had expected to receive under PIK.

But then other things began happening. The Soviet Union bought 300,000 bales of U.S. surplus cotton. Bad spring weather across the cotton belt lowered production estimates. With a recovering economy, demand mounted as U.S. and foreign mills began buying more cotton. And prices continued a steady move upward.

The USDA, meanwhile, finding it wouldn't have adequate cotton for PIK, looked to cotton already on loan as a PIK source. Farmers were asked to cancel their loans and keep the money, and they then would be given the same cotton back as their PIK entitlement. As a sweetener, the USDA said that it would give up to 7 percent more cotton back as part of the deal.

However, corn and wheat growers in similar situations got 25 percent and 20 percent more, respectively, as incentives to provide extra stocks to the USDA.

Cotton producers, watching market prices push toward 80 cents, became less interested in the loan-forfeit deals.

So now the government, to get what it needs to give back to farmers, is requiring that cotton farmers provide part of their new crop to help out.

Farmers in the areas where the USDA wants to apply the new-crop rule would have to violate their forward contracts or buy cotton at today's higher prices--at a loss of 15 cents or more per pound--to meet their contract obligations.

"We think it's damn near unforgivable down here. Our people are absolutely going crazy," said Charles Wofford of Raymondville, Tex., executive vice president of the cotton and grain producers group in the lower valley.

A Washington lobbyist for another cotton trade group added, "Grown men are calling me every day, crying. They say they'll be ruined by this situation. The USDA has bollixed this one totally."

House Agriculture Committee Chairman E (Kika) de la Garza (D-Tex.), who represents many of the valley growers, also is critical of the USDA. "I'm getting concerned that the department is going to try to stonewall this," he said.

"None of us intended for an injustice to be perpetrated in the PIK program. It is just not right to force farmers to this," he added.

De la Garza has scheduled a hearing for next week on emergency legislation directing the department to increase incentives to farmers to cancel their old loans to give the USDA possession of the cotton that will be returned as their payment-in-kind.

Over strong opposition by the USDA, the Senate Agriculture Committee has approved a similar amendment drawn up by the cotton industry and pushed by Sen. Pete Wilson (R-Calif.).

"The Wilson amendment would alleviate the situation," said de la Garza, "but it's part of a packet of other controversial farm legislation. I'm afraid the packet may turn into another Titanic."