Confidence levels remain subdued among the nation's farmers, with difficult global market conditions adding to concerns about high input prices and ongoing dry weather in some areas.
The latest Rabobank Rural Confidence Survey has shown the third successive quarterly decline in Australian farmer sentiment.
The survey found 39pc of farmers expect the agricultural economy to worsen over the next 12 months, up from 36pc with that view in the previous quarter.
The number of farmers expecting conditions to improve in the coming year decreased to 23pc, compared with 28pc last survey.
The Rabobank Rural Confidence Survey questions approximately 1200 farmers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.
Rabobank general manager for rural Australia, Peter Knoblanche, said the latest survey – undertaken a month ago – showed farmers were remaining cautious despite an improvement in seasonal conditions across much of the country.
Although relatively slight, the decline in confidence witnessed this quarter was not surprising, he said, given difficult global markets and the fall in world prices for key commodities such as grain, oil seeds, wool, dairy and cotton.
"Uncertainty in international markets has adversely impacted commodity prices," Mr Knoblanche said.
"The weakening dollar has provided some insulation, however not enough to offset the depreciation we are seeing.
"Also locally, production has been encouraging so we are seeing a further dampening effect on commodity prices driven by local supply."
The ongoing negative impact of high farm input prices and a spring that, while considered average to above-average in many areas, had failed to meet the expectation of some producers, had also weighed down farmer sentiment, Mr Knoblanche said.
"Although oil prices have continued to moderate over the past couple of months, the weakening Australian dollar has had a negative impact on the domestic price of imported farm inputs, such as fertiliser and chemicals, which are for the most part imported as either raw ingredients or processed products," he said.
"On top of this, farmers are still contending with high-priced inventory stock carried by some suppliers."
Of those primary producers surveyed who expected conditions to worsen over the next 12 months, 41pc nominated input costs as a major contributing factor, although this was down from 73pc in the previous quarter.
The drought was also top of mind for many farmers, while concerns regarding overseas markets and falling commodity prices were also prominent, cited respectively by 23pc and 21pc.
Recent global financial market turmoil has had a significant impact on most agricultural commodity markets, fuelling unprecedented levels of price volatility.
The price weakness seen in recent months has continued throughout October and early November with fears of a protracted global economic downturn weakening demand and price expectations for the coming year, particularly in developing nations.
Australia's major agricultural commodity prices – as indicated by the Reserve Bank of Australia's Rural Commodity Index – had fallen 29pc in October, in US dollar terms, from a record high reached in March this year.
However, Rabobank says Australian primary producers have been somewhat protected from the downturn in world prices by a weaker domestic currency, with the same index in Australian dollar terms falling by only 5pc over the March to October period.
Despite lingering worries about the drought, Mr Knoblanche said Australia remains on track for a much improved agricultural season this year compared to 2007.
"With the exception of south western New South Wales, northern Victoria, southern Tasmania and some cropping regions of South Australia, rainfall and seasonal conditions have generally been favourable this spring," he said.
"Harvests across the major grain belts of Queensland, Western Australia and New South Wales should be average to above- average, whilst pasture growth is healthy."