* Latest embarrassing defeat for Republican leaders * "No" votes include those who wanted less cuts, more cuts * Ag committee chairman vows: "we'll finish our work" * First time House rejected a farm bill, researchers say By Charles Abbott WASHINGTON, June 20 (Reuters) - Republican budget-cutters joined Democratic defenders of food stamps on Thursday to deal a shocking defeat to the $500 billion farm bill backed by Republican leaders in the House of Representatives, undermining hopes of enacting legislation before the current stop-gap law expires. The embarrassing loss for Republican leaders was the first time in at least 40 years that the House voted down a farm bill. Speaker John Boehner and Majority Leader Eric Cantor generally do not bring legislation to the floor until they are sure they have enough votes for passage. It showed the power of the Tea Party-influenced fiscal conservatives to disrupt legislation. A Library of Congress study showed it also may be the first time in history the House has rejected a farm bill, although in 2012 a farm bill died without being brought to a vote. Agricultural interest groups were stunned. "Today's failure leaves the entire food and agriculture sector in the lurch," the American Soybean Association, a group which represents growers, said in a statement. Frank Lucas, the disappointed chairman of the House Agriculture Committee, said "I have no doubt we'll finish our work in the near future" although he did not suggest how. Without a new law by Sept. 30 or extension of current law, government farm support rates, which guarantee a minimum price to farmers for crops or dairy products, will revert to high levels guaranteed by an underlying 1949 law. The cost of a gallon of milk in the grocery store could double if dairy processors are forced to bid up the price of milk to match the government support level. Food stamp cuts are the major issue for the farm bill. The House bill called for the largest cuts in a generation - $20 billion - that would disqualify 2 million poor Americans. Democrats, said it set unduly harsh work rules and gave states incentives to cut off recipients. Tea Party-backed Republicans wanted even steeper cuts in food stamps. Last week, the Senate passed a bill that proposed a $4 billion cut, one-fifth of the House level, through modest reforms to the major U.S. anti-hunger program. Cantor blamed Democrats for the outcome, saying they were not interested in consensus. Steny Hoyer, the assistant Democratic leader, said the bill failed because Republicans insisted on "egregious" changes to food stamps. All but two dozen Democrats in the House voted against the bill. The biggest surprise was that about one quarter of the Republican majority also voted no, in most instances because they wanted deeper cuts to food stamps and other programs than proposed. The 234-195 vote undermined hopes of enacting a farm bill before the current stop-gap law expires in the fall. "I am glad we stood up for children," said Sheila Jackson Lee, a Texas Democrat, after the vote. Democrats had complained that cutting food stamps would deprive children from low-income families of adequate nutrition. The estimated cost of the bill "is too big and would have passed welfare policy on the backs of farmers," said Marlin Stutzman, Republican of Indiana, who voted against the bill. In 2012, the farm bill died in the House without being put to a vote, in an election-year gridlock that also revolved mostly around proposed food stamp cuts. Congress began work on the farm bill three years ago, the longest-running effort ever. "The stunning defeat of the House Farm Bill demonstrates how dysfunctional the House of Representatives has become," said Wenonah Hauter of the consumer group Food and Water Watch. Aside from food stamps, the Senate and House bills are similar. Both would expand the taxpayer-subsidized crop insurance program, streamline conservation programs and end the $5 billion-a-year "direct payment" subsidy, paid regardless of need. Republicans such as Steve King of Iowa said the food stamp cuts embodied reforms to end "the expansion of the dependency class in America." Democrat Jim McGovern of Massachusetts, who led the fight against the cuts, said that talk about reform was a cover for "harsh" cuts imposed without any hearings. "It went to far. It hurt too many people," said McGovern. Colin Peterson of Minnesota, the Democratic leader on the Agriculture Committee, said Republican leaders "could not control the extreme right wing of their party." Analyst Mark McMinimy of Guggenheim Partners said prospects for enacting a farm law this year were in "serious doubt" after the "legislative debacle" of Republicans splitting their votes on a bill backed by their leaders. Congress will have to extend current law if it cannot revive the farm bill soon, he said. Due to the six-year-old agricultural boom, farm incomes are high and the delay in writing a new law should have little immediate impact on markets. But analysts said the setback could jeopardize crop insurance coverage for crops to be harvested in 2014. At $9 billion a year, crop insurance is the largest part of the farm safety net. "It's going to provide uncertainty to farmers as far as crop insurance goes," said Brad Farrar, an agent for Ag Producers Insurance in Lafayette, Indiana, who said he expects Congress will extend current law "and move on to the next thing."