Trade concerns, a strong U.S. dollar and increasing grain and meat production are weighing on markets and compressing profit margins for U.S. producers, according to a new report by CoBank.

Strong growth in the U.S. and global economies will support demand through much of 2019. But U.S. competitiveness is being constrained by trade uncertainties and the elevated value of the U.S. dollar, CoBank analysts said.

“At the same time, record U.S. yields for many of the major crop commodities are adding to supplies and limiting any significant farm price improvements over last year,” they said.

While the animal-protein and dairy sectors continue to benefit from strong domestic demand, they’ll need export growth to absorb the current pace of production expansion, they said.

“Agricultural markets are being squeezed as prices remain weak,” Dan Kowalski, vice president of CoBank’s knowledge exchange division, said in a press release accompanying the report.

“While recently negotiated trade deals show some upside for agriculture, global demand for output from the U.S. agriculture sector is being outpaced by current U.S. production,” he said.

The report notes potentially record yields for U.S. corn, soybeans and cotton and record production of beef and pork.

“The escalating trade war with China is the leading risk for U.S. agriculture. Retaliatory actions taken by China and other trading partners have raised concerns of long-lasting effects on agricultural supply chains,” the analysts said.

The soybean market has been significantly impacted by the trade dispute with China, which is sourcing larger supplies from South America. Ongoing trade disputes, particularly with China, will have an outsized influence on the demand outlook for soybeans, corn and wheat, they said.

In the animal-protein sector, pork is experiencing the biggest jolt from trade disputes with China and Mexico and oversupply. Dairy markets continue to show modest improvement, but distress among producers remains — forcing some to exit the business, they said.

Nearly 70 percent of U.S. agricultural exports are destined for countries with active trade negotiations or trade disputes, and markets will be pressured until those issues are resolved, the analysts said.

The Trump administration has stared the clock on the U.S.-Mexico-Canada Agreement, but it will not likely take effect until mid-2019. The reopening of trade discussions with the EU and Japan is also positive, they noted.

“The greatest concern is that the trade dispute with China will escalate if the U.S. imposes additional tariffs in the near future,” they said.

Without any significant improvement in farm prices in 2018, the financial condition of U.S. agriculture will continue to decline. Rising production expenses and staggering gross revenues will contribute to a 5 percent to 10 percent decline in 2018 net farm income, they said.

U.S. farm equity and the debt-to-asset ratio remain stable, but working capital will likely decline by more than 20 percent and the debt-to-income ratio will be at the highest level since 1984, they said.