Agricultural production values are expected to rebound slightly with forecasts of recovering livestock prices.
The Australian Bureau of Agricultural and Resource Economics and Sciences said a small increase in agricultural production of up to six per cent is expected for 2024/25.
The forecast follows expected falls of 15 per cent to $80 billion in 2023/24.
"Australian agriculture, fisheries and forestry sectors continue to perform very strongly, but they have fallen from the record highs of recent years," bureau executive director Jared Greenville said on Tuesday.
"This year the sector is going to fall from those really record highs close to just over $94 billion down to $80 billion and then we're expecting a bit of a rebound next year."
The forecast puts Australian agriculture "in reach" of meeting its $100 billion production target by the end of the decade, Dr Greenville added.
The bureau found drier conditions will likely see winter crop production drop by a third to 46.7 million tonnes in 2023/24, on par with the 10-year average.
The agency's annual commodities report forecasts the summer crop will remain well above its 10-year average, despite falling 17 per cent to 4.3 million tonnes.
Above-average summer 2023/24 rainfall and increased soil moisture reserves in eastern Australia are expected to boost planting ahead of the winter crop season.
"Good soil moisture bodes well for the upcoming winter cropping season," grains analyst Emily Dahl said.
More favourable conditions are also expected to benefit horticultural production, with fruit growing expected to increase by around $600 million to $17.8 billion.
Livestock and cropping both took a hit after an El Nino declaration by the Bureau of Meteorology in 2023, according to Dr Greenville.
A sudden increase in livestock volumes moving through stockyards saw prices drop rapidly, particularly for sheep.
"There seemed to have been a fairly strong response to the El Nino declaration ... (producers) destocked a lot of older animals which then led to that price drop," Dr Greenville said.
Prices have recovered but were around 15 per cent lower in February than the 10-year average.
Livestock prices are forecast to rebound in 2024/25 and return close to real long-term average levels, with a 12 per cent increase in production to $36 billion.
"That's driven a lot by the increase in saleyard prices for cattle, sheep and lambs, but also by a small increase in production," livestock analyst Alistair Read said.
While the 2024-25 outlook is favourable for production, the forecasts predict exports will continue to decline, driven by declining crop production and softer international prices.
The value of milk is also set to fall by seven per cent to $5.5 billion, as relatively low export prices for dairy products are expected to reduce farmgate prices.
The bureau's annual conference in Canberra was told that previously high farmgate milk prices and a growing appetite for Australian cheese in Japan had driven up cheese prices for domestic consumers.
Statistical analysis shows increased climate variability over the past two decades has led to more volatility for agricultural production values.
"Farm financial performance is highly dependent on weather and price forecasts and as such the changing climate will require careful planning and management to manage increasing uncertainty," the bureau's commodities report - released on Tuesday - said.
"The climate is increasingly giving us greater risk in terms of our returns for farm cash incomes," Dr Greenville said.
But producers are expected to see some green shoots.
“Broadacre farm cash incomes are also set to rebound in 2024/25 to $192,000, after significant falls in 2023/24," he said.
"We're expecting to see quite a turnaround in farm profits."
