The head of the Agriculture Department's scientific arm has declared that U.S. farmers are producing such huge surpluses that they no longer need his agency's traditional service -- research to boost food production.

Instead, said Terry B. Kinney Jr., administrator of USDA's Agricultural Research Service, the agency should begin turning attention to scientific research that will make U.S. farm products more competitive in foreign markets.

"Year after year," Kinney told a Brookings Institution seminar last week, "we roll up heavy surpluses and then compete like merchants in a Mideastern bazaar to get rid of the products."

Kinney's goals include adapting farm products so that they will sell in new markets and making farm products more attractive in traditional markets.

As an example of the first, Kinney cited the unsalable surplus in soybean oil production. His scientists could probably improve its marketability, Kinney said, but that would only cut into sales of corn oil, peanut oil and safflower oil. A better strategy, he said, would be to find a way to turn soybean oil into a lubricant, thus opening a new market.

As an example of the second new direction, Kinney cited the problem of U.S. grain spoiling too easily during storage or shipment. American corn is abundant but cracks when it dries, letting fungi and insects invade. Overseas buyers know this and order less than they might if crack-resistant corn could be developed.

Doing more research of this kind, Kinney said, will be part of a "rebalancing of research priorities" at ARS.

REORGANIZING . . . The "rebalancing" is part of a reorganization that Kinney has been carrying out for three years. ARS, the world's largest agricultural research program, operates out of 132 research centers around the country and eight more in other countries. The vast facility at Beltsville is the agency's flagship center.

In 1982, Kinney asked the National Academy of Sciences to examine ARS and recommend how to improve its scientific performance. Last March the academy committee, led by Ralph W.F. Hardy of BioTechnica International, made its report, recommending some of the changes Kinney had already made and emphasizing the need for ARS to move more quickly into biotechnology research.

The academy panel also recommended that ARS streamline its structure by closing down some of the less productive research centers. Although a handful of centers have been closed, many more have resisted such action by appealing through their local members of Congress.

"It should be kept in mind," Kinney recently told Hardy in responding to the report, "that we operate in a political milieu and that decisions to eliminate locations and consolidate functions are usually controversial, to say the least."

AWARDS TIME . . . For his efforts to reorganize the agency, Kinney will receive the department's Distinguished Service Award this year. Also receiving the award, to be presented at a ceremony Wednesday honoring more than 80 individuals and groups at USDA, will be the "ARS Reorganization Group," headed