US biofuels hurt if 2010 tax break expires-report

* Biofuel output would fall 10 pct without tax breaks

* Corn, soybean price would drop 15 cts per bushel

* Ethanol tax credit, import tariff expire in 2010

* Biofuel trade groups seek long-term extension

By Charles Abbott

WASHINGTON, March 9 (Reuters) - U.S. fuel ethanol and biodiesel production would be cut by 10 percent if Congress allows biofuel tax credits to expire this year, a University of Missouri think tank said on Tuesday.

Corn and soybean prices would fall by 15 cents a bushel, estimated the Food and Agricultural Policy Research Institute (FAPRI). One-third of the corn crop is used to make fuel ethanol and about 11 percent of U.S. soybean oil is used for biodiesel.

Fuel ethanol producers such as Archer Daniels Midland Co ADM.N, POET and Valero Renewable Fuels VLO.N -- the three largest distillers -- would be affected too.

The ethanol tax credit of 45 cents a gallon and a tariff of 54 cents a gallon on ethanol imports are scheduled to expire at the end of this year. The $1-a-gallon biodiesel tax credit died at the start of the year but would be revived for 2010 in a bill pending in the Senate.

Without the tax breaks, said FAPRI, ethanol and biodiesel production will track the usage levels mandated by a 2007 energy law. It guarantees annual use of 15 billion gallons of corn-based ethanol beginning in 2015 and 1 billion gallons of biodiesel starting in 2012.

FAPRI said ethanol production would fall by 1.5 billion gallons a year lower, a 10 percent drop, without the tax breaks. Imports also would surge.

Biodiesel production would run roughly 10 percent lower without the tax breaks, or about 100 million gallons a year in 2012 to 2014, said FAPRI.

For each fuel, said the think tank, there would be less incentive to produce more than the volume guaranteed for use.

“We will be looking for a long-term extension so that investors can invest in the industry (all feedstocks included) with some confidence,” said Matt Hartwig of the Renewable Fuels Association, a trade group. Hartwig said smaller U.S. production would mean “a loss of jobs, a loss of tax revenue and increase reliance on imports.”

A spokesman for Growth Energy, an ethanol trade group, said the tax credit “provides value to the consumer in the form of lower gas prices” and should be extended.

Biofuels are popular in farm country as a home-grown fuel and an additional source of income. Environmental groups say biofuels encourage overuse of farm chemicals and drive up food prices. (Reporting by Charles Abbott; Editing by Lisa Shumaker)