CANBERRA, Dec 5 (Reuters) - Australia on Tuesday raised its forecast for winter wheat production by about 100,000 metric tons but said the 25.5 million ton harvest would still be 37% smaller than last year's after dry weather reduced yields.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) also said in a quarterly crop report that barley and canola production would be higher than it expected three months ago.

Australia is a major exporter of grains. Strong Russian supply has kept wheat prices near three-year lows but relatively small crops in Australia, Canada and Argentina are contributing to global undersupply.

Australia saw record harvests in recent years thanks to plentiful rain but an El Nino weather phenomenon this year has brought some of the driest and hottest conditions on record.

The revised forecast for winter wheat production is 4% below the 10-year average, ABARES said.

Barley production will fall 24% to 10.8 million tons, 4% below the 10-year average, the agency said, after forecasting a 10.5 million ton harvest three months ago.

Production of canola will fall 33% to 5.5 million tons but remain well above the 10-year average, ABARES said. In September it predicted a 5.2 million ton crop.

"Crop prospects over spring have been mixed," the report said, with improvements in southern cropping regions expected to more than offset downgrades in northern regions.

Rain in September helped lift yields but storms in recent days damaged the quality of the wheat harvest, analysts say.

For summer crops, ABARES forecast sorghum production down 45% to 1.5 million tons in 2023–24 and cotton lint output down 26% to 925,000 tons but said rice production should rise 35% to 700,000 tons.

The gross value of Australia's crop production is expected to fall by A$12 billion to A$46 billion ($30 billion) in the 2023–24 cycle, ABARES said.

($1 = 1.5122 Australian dollars)

(Reporting by Peter Hobson; Editing by Jamie Freed)