Farmers are feeling less confident as prices for commodities such as wool, grains, dairy products and beef ease, and drought grips parts of Queensland and NSW.
The latest quarterly Rabobank rural survey shows that after a strong bounce earlier in the year, Australian farmers felt less confident over winter.
"The general easing in farmer sentiment can be attributed more to increased concerns about external factors, including a weakening in some commodity prices as well as global oversupply issues in the dairy and grains sectors," Rabobank's chief executive of country banking in Australia, Peter Knoblanche, said on Monday.
Good autumn rains in many areas had been followed by encouraging winter rains in the southern and western areas of the country.
But central and southern Queensland, and northwestern and western NSW were still experiencing dry weather.
Farmers in Western Australia were the nation's most confident, and farmers in Victoria and South Australia were generally upbeat about the rural outlook.
But confidence amongst farmers in northern NSW, and the Darlings Downs and central highlands of Queensland was weaker as a result of the dry conditions.
The survey of 1,000 farmers, which was completed about one month ago, also revealed a drop in how many expect the agricultural economy to improve in the coming year.
About a quarter expected conditions to deteriorate, up from 15 per cent.
Nearly half expected similar conditions to last year.
Farmers who expect things to improve based their confidence on good seasonal conditions and hopes of rising commodity prices.
Most farmers with a negative outlook cited falling commodity prices as the reason for their view, followed by seasonal conditions - more so in Queensland and NSW.
Sheep producers were the most confident, given recent rises in lamb and mutton prices.
Beef and dairy producers were less confident due to weaker prices.
Although farmers were less confident on the outlook for the agriculture sector, they were more confident about their own on-farm prospects.
About one fifth expected the performance of their farm business to worsen, and 24 per cent expected farm income to fall.
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