* Cotton area down in western, northern parts of India
* Acreage may fall to 2.5 mln hectares in No. 1 producing state
* Farmers could switch to crops such as guar, corn, soybean
By Deepak Sharma
MUMBAI, July 5 (Reuters) - Cotton output in India is likely to fall as much as a fifth in the year from October, hit by poor monsoon rains, trade and government officials said on Thursday, cutting exports of the fibre from the world's biggest exporter after the United States.
Patchy rains and better returns on crops such as guar and oilseeds had previously prompted trade officials to forecast a drop of 10 percent in cotton acreage.
"There were no rains in the key producing regions of western and northern India. And both cotton acreage and output could fall by around 20 percent," Arvind Patel, vice-president of industry body the Saurashtra Ginners' Association, told Reuters.
In 2011/12, higher prices encouraged farmers to plant cotton on a record 12 million hectares, helping India harvest 34.7 million bales of 170 kg each.
The monsoon, which is the main source of water for 55 percent of India's arable land, was 31 percent below average from June 1 to July 2, losing even more momentum in the last week after being 23 percent below average in the week to June 27.
Farm and weather officials said rice, cane, corn and soybeans might not be hit if the rains revived in the next few days.
The June to September rains should improve next week, Farm Minister Sharad Pawar said on Tuesday, amid growing concern over a halt in the progress of the monsoon.
The area planted to cotton in India's biggest producing state of Gujarat is likely to dip to 2.5 million hectares this year against more than 3 million in 2011, said an official with the state farm department, who asked not to be identified as he was not authorised to speak to the media.
In the neighbouring state of Maharashtra, farmers have so far been able to plant cotton on only 10 percent of the normal sown area of about 4 million hectares, and they may have to replant if the rains get delayed further.
Since cotton takes time to mature and consumes more water, even farmers who had earlier planted the fibre, could switch to crops like guar, corn, soybean and millets, Patel said. There was no rain after the sowing of cotton, which has already wilted, said Purushottam Kale, a farmer from Akola in Maharashtra state.
"Now I have to plant either pulses or soybean," Kale said.
Monsoon showers in Gujarat and Maharashtra, which together account for about 60 percent of India's cotton output, were as much as 70 percent less than normal, weather office data showed.
In the northern parts of India, cotton acreage is already down 300,000 hectares to 1.4 million hectares, said B. Monga, an official of the Central Institute for Cotton Research.
Irrigation could have helped in some states but lower water levels in reservoirs are also a cause for concern, Monga said.
Water levels in India's main reservoirs in the week to June 28 were at 16 percent of capacity, down 11 percentage points from the year ago period.
Any drop in output will cut exports in the 2012/13 season, traders said.
Due to the bumper harvest of 2011/12, traders believe India's cotton exports will hit an all time of 13.5 million bales in the current season that ends in September 2012.
China, the top buyer, already has a huge stockpile of cotton, which could damp any surge in global prices, even if India exports less next year, said Arunbhai Dalal, a trader based in Gujarat.
China, the main buyer of Indian cotton, is renegotiating prices and has defaulted on many import contracts following a sharp fall in the price of cotton in the United States.
The benchmark December cotton on the ICE was trading down 0.41 percent at 72.30 cents per lb by 0952 GMT
