* Fewer rains hit crop in top growers Gujarat, Maharashtra

* Output seen at 32.5 mln bales vs 37 mln bales yr ago

* Exports seen at 5-6 mln T vs earlier forecast of 10 mln T

* India is world’s top cotton producer

MUMBAI, Dec 6 (Reuters) - India’s annual cotton output could drop 12 percent to the lowest in nine years as limited rainfall in the top two producing states has slashed crop yields, potentially cutting exports from the world’s top producer, industry officials said.

Lower cotton shipments from India will allow rivals such as the United States, Brazil and Australia to increase cargoes to key Asian buyers such as China and Pakistan. It may also support global prices that have fallen 16 percent since hitting a four-year peak in June.

India could produce 32.5 million bales in the 2018/19 marketing year that began on Oct. 1 - the lowest since 2009/10 - as farmers in the western states of Gujarat and Maharashtra are reporting poor yields, said Chirag Patel, chief executive at major exporter Jaydeep Cotton Fibres Pvt Ltd.

Rains in Gujarat and Maharashtra, which account for more than half of India’s cotton production, were nearly a quarter below normal during the June-September monsoon season.

“Many farmers had to uproot plants after first cotton picking. There won’t be a second or third picking like every year,” Patel said.

India produced 37 million bales in 2017/18 and was expected to harvest 36.1 million bales this year, according to the state-run Cotton Advisory Board.

“Despite higher prices, supplies are not picking up. The crop is lower than estimated,” Patel said.

New season cotton supplies usually start from October and peak in November and December. But spot supply in the past two months only reached around 7 million bales compared to 10 million bales a year ago, said Atul Ganatra, president of the Cotton Association of India (CAI).

Pink bollworms also hit plantation in Maharashtra, he said.

Indian farmers have adopted genetically-modified seeds known as Bt cotton that are resistant to bollworms, but it hasn’t stopped the infestations. Pink bollworms consume the fibre and seeds inside a cotton plant’s boll, or fruit, and yields fall.

LIMITED SURPLUS

In June, traders were expecting India to export as much as 10 million bales amid strong demand from China due to the trade dispute between Beijing and Washington.

But smaller crop size will limit surplus for overseas sales and lift local prices, said Arun Sekhsaria, managing director of exporter D. D. Cotton.

“We could export 5 to 6 million bales. Export demand is likely to pick up in coming months as Indian cotton is cheaper than other origins,” Sekhsaria said.

Indian cotton is being offered around 84 to 85 cents per lb, cost and freight, to buyers in Bangladesh and Vietnam, versus around 90 cents for those from the United Sates and Brazil, dealers said.

In the current season, traders have contracted to export around 2.5 million bales and have shipped around 1 million bales, said Ganatra of CAI. (Reporting by Rajendra Jadhav Editing by Manolo Serapio Jr.)