* India's monsoon in 2014 forecast to be below average
* Cotton farmers using more high-yielding seeds, raising cotton acreage
* Seed firms benefit; Kaveri Seed shares outperform mkt over past month
By Meenakshi Sharma
MUMBAI, June 12 Worries about weak monsoon rains this year have prompted Indian cotton farmers to use more hybrid seeds that need less water and have a higher yield, boosting shares of companies such as Kaveri Seed Co.
Some farmers are also raising cotton acreage as the crop is generally less water-intensive, a trend that will help increase output and pressure global prices that are also likely to be squeezed by an expected rise in U.S. production.
The United States is the world's biggest exporter of the fibre, while India is the No. 2 producer and exporter.
India's monsoon is expected to bring below-average rainfall in 2014, potentially lowering grain yields as half of the country's farmland lacks irrigation. However, the impact of the El Nino weather phenomenon - which can cause drought in South Asia - is likely to be weak in India.
Farmers in India start sowing cotton by the end of May and harvesting commences from end-September. Many cotton-growing farmers this time around are using expensive but high-yielding seeds to ensure productivity does not suffer.
K.B. Jadeja, a farmer in the western Indian state of Gujarat, the top cotton cultivating state, said he bought seven varieties of high-yield hybrid seeds from local firms. Seed suppliers such as Kaveri Seed and Maharashtra Hybrid Seed Co (Mahyco) are beneficiaries of purchases by the farmers.
"The cotton seed supplier companies would make money because the sale of seeds, especially rain-resistant varieties would be more this season," said Prerana Desai, vice-president of research at Kotak Commodities.
Kaveri Seed shares are up about 12 percent in the past month, outpacing the 8 percent gain in the broader index . The company did not respond to emails seeking comment.
"We expect (sales) to grow reasonably well at about 8-10 percent in volumes this season," said Subbarao A.R., strategic business head of Mahyco's cotton business.
"There are many options of good hybrids with tolerance to water stress available to farmers in the market."
Farmer Jadeja said he has cut down area under groundnut cultivation this season, due to the potential water scarcity.
"I've increased the area under cotton by 20 acres to 150 acres this season as prices are attractive and risk factor is less compared to other crops like groundnut," Jadeja told Reuters over the phone from Gujarat.
In the previous sowing season, farmers sprinkled cotton seeds in 11.5 million hectares and the estimated yield was 551 kilogram per hectare, according to the state-run Cotton Advisory Board (CAB). Subbarao of Mahyco said cotton acreage could go up about 5 percent this year.
CAB estimates India's cotton output at a record 37.5 million bales for 2013/14, with exports of 9 million bales. Most of that goes to China.
In the spot market, the most-traded Shanker-6 variety of cotton has been quoted at 41,700 rupees ($700) per candy of 356 kg on Wednesday, a rise of more than 6 percent since the same period a year ago. ($1 = 59.3000 Indian Rupees) (Editing by Krishna N Das and Muralikumar Anantharaman)