For 2008/09, it says shorn wool production is forecast at 385 million kilograms greasy - a 4pc decline from 2007/08.

AWI attributes this decline to high global grain prices and continuing dry conditions in some parts of eastern Australia, which is resulting in a fall in sheep numbers.

But committee chairman Russell Pattinson expects a rebound in Queensland wool production and a modest rise in NSW production in 2008/09.

"Unfortunately, this will not be enough to counterbalance the reduced production in the other states," Mr Pattinson said.

"Once again, parts of eastern Australia have started the pasture growing season with rainfall well below normal.

"The most extreme example of this is Tasmania, with the southern region and east coast continuing to be ravaged by one of the worst droughts in living memory."

A lack of autumn rainfall in Victoria, South Australia, Tasmania and many parts of NSW has increased sheep turn-off for slaughtering and live sheep export, while lamb slaughterings have been remarkably robust for much of 2007/08.

In Western Australia, high global grain prices have provided a strong incentive for farmers to sow additional winter crop at the expense of sheep grazing.

"All these factors combined have added downward pressure to Australian sheep numbers over the course of the 2007/08 season," Mr Pattinson said.

"As such, we have fewer sheep in Australia at the start of the 2008/09 season compared with 12 months ago, which will result in fewer sheep available for shearing over the next 12 months."

* A full report of the latest forecasts will be available after 2.00pm Wednesday, July 9, on the AWI website at www.wool.com.au/forecasts.