Excellent seasonal conditions and record dairy prices in Victoria are being offset by concerns around foot and mouth disease (FMD) and rising input costs, according to the Rabobank Rural Confidence Survey for the last quarter.
Investment into new technologies to fight farm worker shortages and high commodity prices are expected to continue good business as well.
Rabobank regional manager for northern Victoria Sally Bull, said local conditions were very favourable for farmers, with crops and pastures being in the best position in the lead up to spring.
However, farmers were undoubtedly aware of the potential impact of the ongoing Russia-Ukraine conflict and Indonesia's foot and mouth (FMD) outbreak on markets and prices.
More than 92 per cent of farmers reported being very or extremely concerned about the recent heightened threat of FMD.
"I would say sentiment is very high across Victoria, but I think farmers have now hit a point where it's clear conditions are 'as good as it gets' and based on some external pressures, they can only see conditions deteriorating, not getting any better," Ms Bull said.
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The past two years have also delivered strong returns for the state's farmers, who have invested heavily in boosting productivity.
According to the survey, more than three-quarters of increased investment will be directed to on-farm infrastructure, while adopting new technologies is a priority for almost half the Victorian respondents.
Ms Bull said the dairy and horticulture sectors were leaders in buying up labour-saving technology and automation to overcome mounting workforce issues.
Most farmers surveyed expect to maintain or increase their levels of investment in that space over the year ahead.
Ms Bell also said seasonal conditions had meant various sectors, including grains and beef, remained positive, but it is also contributing to some optimism falling away.
"Beef prices are still quite good, whilst sheep and lamb prices have fallen from last year's high, with increased lamb numbers and processor capacity, impacted by labour shortages, and buying activity having an impact on the market," Ms Bull said.
"Water allocations are excellent, and irrigators can look forward to a full allocation for the next couple of years.
"However, the flood risk is high along the Murray, particularly west of the Hume Dam and a third wet spring and summer will only see this risk elevated for some time."
The survey showed that 14pc of Victorian farmers expect business conditions will improve over the 12 months ahead, compared with 31pc in the June quarter survey.
A total of 38 per cent of the surveyed Victorian farmers tip conditions to be largely unchanged, while 40 per cent are now factoring in conditions worsening.
Sector-specific sentiment shows various views, 73pc of mixed sheep and cattle sector farmers believe conditions will worsen, primarily driven by FMD concerns.
But farmers are hugely positive in the dairy sector after milk contract prices kept going up to record levels earlier this year, with 42pc of dairy farmers surveyed planning to spend more on their business this coming year.
Rising interest rates had not affected sentiment surrounding the rural property market at the same level as city real estate, with 29pc of Victorian farmers looking to increase investment in their business over the next year planning to do so through property expansion.
Victorian farmer sentiment is faring better compared to other states, with only Queensland also showing a positive outlook among farmers, while other states are recording a negative or stable level of confidence for this quarter's survey.
