Victorian farmers are more optimistic than farmers in other states, the results of the recent quarter two Rabobank Rural Confidence Survey have shown.
Continuing high beef and dairy prices have kept confidence high for Victorian farmers, while step-ups in milk contracts have also boosted those in the dairy sector.
Business conditions will continue to improve in the year ahead, according to 31 per cent of Victorian farmers, compared to 23pc of farmers who held that view last quarter.
There was a slight increase of farmers with a pessimistic outlook, with 19pc of the respondents expecting deteriorating conditions, up from 15pc.
More than two-thirds of those reporting a negative view blamed high input costs as a critical reason for their pessimism.
A total of 47 per cent of Victorian farmers surveyed believed conditions would remain stable for the upcoming year.
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Rabobank regional manager for Southern Victoria Deborah Maskell-Davies said the climate and commodity price outlook were very healthy across all sectors.
She said that while pressures from high input prices remained, farmers had positivity over commodity prices.
"The current high pricing we see in the dairy sector is really capping off a number of profitable years," Ms Maskell-Davies said.
"But all farmers, not just those in dairy, are closely monitoring rising costs for key inputs like fertiliser, fuel and even interest rates, and expressing concerns about what is becoming a fiercely competitive labour market.
"While these rising costs are being offset by high commodity prices at the moment, any reduction in those prices will put pressure on margins as production costs are just so high."
In the beef sector, optimism continued due to good prices and favourable conditions.
Sheep also continued to be buoyed by solid demand for lambs and higher fine wool prices, despite challenges with processing capacity and supply chain disruptions.
While on-farm capital works like fences, silos and machinery had been the main focus for investments, the survey showed the appetite for Victorian to purchase property and expand farming operations had dropped off significantly.
"From my discussions with farmers, it's clear many are still wanting to expand but there is either nothing for sale, or there are many parties vying for the same property," Ms Maskell-Davies said.
But she said there was a feeling that rural property prices "can't continue escalating like they are at present", yet there were still a lot of balance sheets with a capacity to grow and borrow, which could keep demand high.
While optimism in Victoria was high, it's a different story in other states, with the survey finding a drop in optimism.
28pc of Australia's farmers expect business conditions to improve in the upcoming year (down slightly from 31pc with that view in the previous quarter.
A deterioration is expected by 16pc of Australia's farmers, compared to 14 per cent previously, while 53pc expect business conditions to be stable.
This resulted in three consecutive quarterly declines in net rural confidence and brings farmer sentiment back to levels last seen in June 2020, after the first COVID pandemic lockdown.
The survey questions an average of 1000 primary producers across a broad set of regions and commodities each quarter.
