By Darshan Mankad and Ramesh Jadhav

AHMEDABAD/PUNE, India, Dec 11 (Reuters) - India's cotton supply is likely to be tight in the next few weeks as farmers in most states are stocking their produce, hoping that prices will rise further, growers and traders said.

Cotton prices in the world's top producer after China have already risen 20 percent to about 3,200 rupees ($69) per 100 kg in the past six weeks, prompting textile firms to demand a ban on cotton exports.

Exports in 2009/10 are set to jump 57 percent to 5.5 million bales (1 bale=170 kg), textile commissioner and chairman of Cotton Advisory Board, A.B. Joshi, said last month.

Domestic output this year is forecast to drop 3.3 percent to 29.5 million bales despite higher planting because of dry weather in some parts of the country and floods in other, raising farmers' hopes of higher prices.

"I expect prices to reach 3,500-4,000 rupees ($75-$86) per 100 kg. I will wait for a few weeks to sell the produce," said Vijaykumar Kumavat, who has harvested 4,000 kg of cotton in the Jalgaon district of Maharashtra state, a key producer.

Raw cotton supplied to the market until Dec. 4 was 7.31 million bales, marginally higher than 7.16 million bales a year ago, data from the Cotton Corporation of India showed, but farmers say they will reduce sales.

Panjabrao Shelke, a farmer in Akola district of Maharashtra, said he had sold about half his harvest of 17,000 kg at 3,1250 rupees per 100 kg due to a shortage of storage space, but will sell the remainder when prices touch 3,500 rupees.

Most growing states, other than the western Indian state of Gujarat, the country's top producer, reported a similar trend.

"Farmers are aware of the strong demand this year. They have held their crop to take benefit of rising prices," said G. Punnaiah Chowdary, president of Andhra Pradesh Cotton Association.

In the central Madhya Pradesh state, most farmers were waiting for the price to touch 3,500 rupees per 100 kg, said Nitin Bonde, a farmer from in its Chhindwara district.

Lower yield in some regions had hit cotton output, said Rakesh Rathi, president of North India Cotton Association.

"Acreage may be higher this year, but the yield has fallen in northern parts and due to this, arrivals have gone down," he said.

In Gujarat, farmers could hold stocks for only two weeks because of low storage capacity, said N.M. Sharma, Managing Director at Gujarat State Cooperative Cotton Federation Ltd.

Farmers in the state had sold about 2.7 million bales until last week, up three quarters from a year ago, but in Punjab and Andhra Pradesh states, sales were down by a third.

In Maharashtra, the second-biggest grower, sales were down 8 percent. ($1=46.5 rupees) (Additional reporting by Kaushal Verma in BHOPAL, Arvind Sharma in JAIPUR, Surinderpal Singh and Vikas Vasudeva in CHANDIGARH; Editing by Malini Menon)