Federated Farmers president William Rolleston attributed most of the pessimism to the fall in dairy prices, which are down 46% from their peak last February.
The survey showed nearly 80% of dairy farmers expected their profitability to worsen, although that should be put in the context of the very strong 2013-14 season, which had record returns, he said.
The dry summer was also affecting sheep and beef farmers' profit expectations. Stock being sent to slaughter earlier than usual, and a higher than usual dairy cull cow kill, had increased supply at meat processors and reduced schedule prices, he said.
Pessimism about profitability was reflected in farmers' spending intentions, with more farmers now expecting to reduce spending, particularly dairy farmers.
For the first time since the global financial crisis, more farmers were expected to increase debt than reduce debt.
The biggest concern for farmers was commodity and farm-gate prices, cited by nearly 33% of farmers, followed by the weather at 21%.
ANZ's latest Agri Focus said dairy spot prices still needed to lift further for current industry forecasts to materialise.
While one challenging year was manageable, two years would be problematic.
The next 18 months would put much pressure on farmers' cash flow and ''ability to balance the books''.
It would necessitate a cut in not just capital and discretionary expenditure, but also some core operating expenditure categories to break even and avoid a debt blowout, the report said.
Leverage was heavily concentrated and about half the debt was held by 20% of farmers.
Many of those were larger/corporate operations that tended to have more balance sheet flexibility and often better financial performance from investment in key areas.
Lower interest rates had reduced interest costs despite an increase in debt levels.
On the typical farm, that had seen interest servicing costs decline by nearly $0.50/kg ms since the global financial crisis.
There had been a huge amount of investment back into dairy operations over the past five years.
DairyNZ figures showed the average farm undertook $850,000 of capital expenditure, with $720,000 of that funded from retained earnings.
That created more ''flex'' for cost structures during leaner times, had created greater efficiencies and added to productive capacity, the report said.
