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Interest rates and drought risk weighing on farmers

Easing commodity prices, rising interest rates and concerns over a return to drought have caused sentiment among Australian farmers drop to its lowest level in more than four years, according to Rabobank.

The agribank's Rural Confidence Survey, showed that only 11 per cent of farmers are expecting the agricultural economy to improve over the coming year compared with 15 per cent in the previous quarter.

It's at its lowest level since late 2018.

Western Australia and Tasmania bucked the trend as the only states to report a lift in sentiment.

Sentiment also varied across the different commodity sectors. Beef and dairy producers had the most pessimistic outlook.

A third of all farmers surveyed expect business conditions to worsen in the next 12 months, while half of them think it will be business as usual.

Falling commodity prices are the main factors driving the negativity, with 68 per cent believing conditions will worsen.

Interest rates are also an increasing concern for one in five farmers.

Producers are also worried about the weather, with 13 per cent of farmers anxious about drought, while those concerned about too much rain dropped from 32 per cent to six per cent.

Rabobank Australia chief executive officer Peter Knoblanche said the latest survey reflected a combination of commodity prices, global economic challenges and high production costs facing farm businesses.

"Despite having their resilience tested throughout 2022, most Australian farmers ended last year on a high, buoyed by seasonal conditions and high commodity prices," Mr Knoblanche said.

"However, as we see the heat come off many commodities - albeit down from significant highs - farmers recognise conditions will start to return to more 'normal' levels," he said.

"This survey captures their realistic expectations that commodity prices will likely not return to the highs this year that we saw in the previous 12 months."

Official figures show Australian agriculture's gross value of production is forecast to reach a record of $90 billion in 2022-23.

But that's expected to fall by ten per cent to $81 billion for 2023-24.