Australian wool prices have surged to their highest level for a more than a decade amid industry concerns a severe drought will make this season's wool clip the smallest in more than 50 years.

Worried wool buyers sent prices soaring to 14-year highs after the Australian Wool Innovation's forecasting committee confirmed concerns the drought could cut wool production in 2002-03.

The wool clip is seen as falling 11 per cent to 495 million kilograms this season, the smallest clip since 1950-51.

That forecast and panic buying also sent wool prices rocketing thousands of miles away in South Africa.

AWI forecasting committee chairman, David James, said: "In the coming year, drought conditions will have a major effect, particularly in Australia's largest wool producing state, NSW, where we believe wool production is likely to fall by 16 per cent and may even fall further by the end of the season if drought conditions worsen."