(Adds Grassley comment paragraph 9)

WASHINGTON, March 9 (Reuters) - President George W. Bush's plan to join with Brazil in boosting alternative fuels would deal a serious blow to American farmers, ranchers and taxpayers, a U.S. farm group said on Friday.

Tom Buis, president of the National Farmers Union, which represents smaller U.S. farm interests, warned that Bush's proposal on developing new technologies and international standards would redirect resources that could be used to feed a nascent boom in ethanol production at home.

"Using U.S. taxpayer dollars to encourage new ethanol production in foreign countries will only directly compete with production right here at home," Buis said in a statement.

"This agreement is the wrong step in the wrong direction at the wrong time," he added.

Growing production of ethanol, which in the United States is made mostly from corn, has shaken up U.S. agriculture, driving up corn prices and squeezing other crops like soybeans.

It has also prompted cries from livestock owners, who are paying more for cattle feed.

During a Latin American tour this week, Bush celebrated a new partnership with Brazilian President Luiz Inacio Lula da Silva in promoting the alternate fuels around the globe.

Bush believes the alternate fuels are needed to wean the United States from its addiction to imported oil.

Brazil's ethanol crop is sugar.

Sen. Chuck Grassley, a Republican from Iowa, said he was glad Bush decided on measured steps with Brazil on biofuels. He promised to follow the issue closely to ensure the deal "doesn't lead to the use of U.S tax dollars in a way that harms the U.S. ethanol industry."

Sen. Richard Lugar, an Indiana Republican, welcomed the new cooperation as a move to rebuild Washington's reputation in Latin America and increase energy security.

"All possibilities for growth in biofuels production must be explored to decrease our 'oil addiction,'" he said.

Ethanol imports into the United States are now subject to a tax of 54 cents a gallon, which Brazil would like to see repealed. Bush, however, rebuffed that idea in his Brazil visit, saying the tax would stay in effect at least until its expiration in a few years.

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