Rising input costs and the fallout from the war in Ukraine has seen farmer confidence decline for a third quarter.
Results of the latest Rabobank rural confidence survey show optimism around high commodity prices and another bumper grains harvest has been clouded by the increasing cost of farm inputs like fertiliser and fuel and other inflationary pressures.
But while optimism has reduced across some states, Western Australia's appetite to invest in their farm businesses has increased, with WA farmers holding the strongest intentions in the nation to purchase new property.
Overall confidence levels slipped in Queensland, NSW and Tasmania.
While Victorian farm sector confidence edged up in the face of rising costs thanks to high beef and dairy prices, a dry start to the cropping season in South Australia has done little to impact confidence there.
The report surveys 1000 primary producers and shows half of the Australian farmers interviewed think the ongoing Ukraine conflict will have a negative impact on farm businesses, citing higher input costs as their main concerns.
A quarter thought it would have a positive impact on the market because of reduced supply keeping commodity prices high. This view was strongest in the grain sector.
Farm income projections for the 12 months ahead remain stable while the number of farmers looking to increase investment has declined slightly this quarter.
The survey found 28 per cent of Australia's farmers now expect business conditions to improve in the coming 12 months which is down three per cent from the previous quarter, while 16 per cent expect conditions to deteriorate, up from 14 per cent.
More than half expect business conditions to remain stable in the year ahead.
This marks three consecutive quarterly declines in net rural confidence and brings farmer sentiment back to levels last seen in June 2020, after the first pandemic lockdown.
Confidence is highest in the cotton and grain sectors, and very strong among dairy producers, with high prices and excellent seasonal conditions across the three industries.
Livestock sector confidence has eased, but strong commodity prices are helping stabilise sentiment.
Confidence among sheep producers has dipped slightly from last quarter, while investment intentions and farm income projections have also dampened.
Sentiment was mixed in the sugar sector, with growers thinking conditions will improve, stay the same or worsen.
Peter Knoblanche, chief executive of Rabobank Australia, said many farmers had enjoyed high agricultural commodity prices and excellent seasonal conditions for more than two years, but rising input costs had squeezed profits.
He said many have invested in new technology, machinery and equipment.
"The benefits of those investments are certainly helping farmers create some efficiencies, but the cost pressure is not easing and producers definitely need those higher commodity prices in order to meet rising input costs," he said.
The latest survey found the main driver of optimism among farmers with a positive outlook was the expectation that commodity prices would continue to rise.