University of WA School of Agricultural and Resource Economics associate professor, Ross Kingwell, says the challenge was on top a sequence of already poor years.

"The cost of fertiliser and diesel is huge, after very recent cost inflation," Prof Kingwell said.

"Oil prices hit an all time high, which is typical of where we might be heading.

"We are becoming very energy dependent and farmers are becoming concerned about the ramification these prices could have on their bottom lines."

In all regions, changing climate and more expensive energy would be long term challenges.

"Energy-intensive and trade-exposed broadacre farming will experience challenges and opportunities afforded by new carbon markets," Prof Kingwell said.

"More farms are likely to become spatially diversified and flexible to capitalise on seasonal, enterprise and market opportunities, while spreading risks."

Already there had been a shift in the livestock-cropping mix with sheep numbers at their lowest since 1924.

Numbers have declined from nearly all areas of the state, but the number of sheep on each farm has remained the same, with farm sizes increasing.

While sheep numbers decline, cropping dominance across the state has increase, with a big shift in the southern and central areas.