Farmers are the least confident they have been in four years after a lack of rain over winter slashed production forecasts.
Sentiment is weak across all states and all sectors, including beef, sheep and grain, says agribusiness banking specialist Rabobank.
Rabobank says the drop in positive mood shown by its latest quarterly survey is unsurprising given that it comes off high levels of confidence over the past year, and many farmers are entering spring with limited soil moisture reserves.
Australia this year experienced its second-driest June on record, leading to downgraded winter crop prospects and cattle and sheep farmers putting animals on the market earlier than expected.
Fifty-one per cent of farmers expect the next 12 months to bring similar conditions to the previous year.
While the percentage of farmers expecting the agricultural sector to worsen over the next year increased to 27 per cent, from 10 per cent in the previous survey.
"With the season front of mind for many, 50 per cent of farmers nominated dry conditions as a major reason conditions were likely to deteriorate over the next 12 months - nearly double the 28 per cent with that view last quarter," Rabobank said in a statement on Monday.
Concerns over dry conditions were especially heightened in the cropping sector, where the national wheat crop is forecast to reach 22 million tonnes - down from last season's record 35 million tonnes.
Rabobank's national manager Country Banking Australia, Todd Charteris, said early August rainfall had given some areas some relief.
But conditions were still very dry in Western Australia's central and northern cropping regions and across much of Australia's eastern seaboard.
Although, Victoria and northern Tasmania had benefited from good rainfalls in recent weeks.
Rabobank said that although farmers had lowered their expectations for the year ahead, they were still positive about the long-term outlook for the agribusiness sector.
The Rabobank survey, which questioned 1,000 primary producers, was completed in August.
