The drought keeps shrinking the size of the Australian wool clip which is now estimated at 285 million kilograms greasy for the 2019-2020 season.
The Australian Wool Production Forecasting Committee (AWPFC) says this season's clip will decline by five per cent compared with last season's 300 million kg.
Acting committee chairman, Chris Wilcox, said seasonal conditions in key wool producing regions in western Victoria, south-east South Australia and Western Australian were reasonable.
However, he said large parts of NSW, Queensland, eastern Victoria and the pastoral regions of South Australia continued to experience dry to drought conditions.
Production in the biggest wool state, NSW, is forecast to drop 11.4pc year-on-year to 87.8m kg. Wool production in NSW has nosedived by almost 38m kg in three years.
Production in Victoria (66.7m kg), WA (62.1m kg) and SA (53.2m kg) will decline only marginally compared with last season.
The committee noted the key factor limiting a recovery in shorn wool production was the number of sheep shorn, followed by high adult sheep slaughter in 2018-19 and low lamb marking numbers.
Sheep numbers shorn for the 2019-20 season were tipped to drop by 5.9pc to 68.2m.
"The sheep and lamb turn-off data from the Australian Bureau of Statistics to the end of June 2019 show a 16pc increase in sheep slaughter compared with the same period a year earlier," Mr Wilcox said.
"This has partly been offset by lower live export numbers. Tough seasonal conditions have continued to negatively affect pasture feed availability and low supplies of hay and grain have prompted many producers to make difficult decisions to reduce the number of sheep on farms.
"Availability of stock water is also reported to be a key issue in some areas, notably in NSW and Queensland."
The committee said results from the latest MLA and AWI wool and sheepmeat survey indicated that where possible, wool producers intended to hold onto, and perhaps increase, breeding ewe numbers.
It acknowledged this required normal spring rainfall through many wool producing areas to build soil moisture, on-farm water supplies and allow good pasture growth.
The committee estimated shorn wool production for the 2018-19 season at 300m kg greasy, a 12.1pc decline on the 2017-18 season.
"The dry finish to the 2018-19 season in some areas resulted in further reductions in key wool test parameters since April.
"Average yield ended the season at 63.1pc, down 1.5pc on 2017-18, while mean fibre diameter was down by 0.5 microns to 20.5 micron and staple length was down 2.2mm.
"The season ending levels of these three key test parameters are either at, or near, the lowest levels since the 2000-01 season.
"The fibre diameter distribution of the Australian wool clip showed a significant increase in the weight of wool tested of 18.5 microns and finer and a sharp contraction in the volume of 18.6 and broader wools," Mr Wilcox said.