Milk futures in Chicago changed little Tuesday, as a July heat wave gripping U.S. dairy regions offset surprisingly strong production during June.

Nationwide, milk production totaled 16.32 billion pounds during June, up 2.4 percent from the same month in 2009, the USDA said in a monthly report on Monday.

June marked the fourth consecutive month U.S. milk production rose compared to year-earlier levels, and output topped trader expectations for an increase of about 1.5 percent.

The USDA report was deemed bearish for milk prices. But the muted reaction in CME Group’s dairy complex Tuesday indicates traders are fixated more on extreme heat in the Midwest and Northeast that’s likely causing cows to produce less milk, analysts said.

The heat, combined with recent tightening of cheese and cream supplies, “will likely continue to trump the mild milk-producing weather in June,” brokers Dave Kurzawksi and Eric Meyer said in a report.

“This bearish report may be shrugged off by traders in favor of the more immediate influences of spot cheese and butter markets,” said Kurzawski and Meyer, who are with Downes-O’Neill/FCStone in Chicago.

At Tuesday’s close, Class III milk futures for August delivery rose 3 cents to $14.95 per hundred pounds, up 10 percent over the past four weeks.

A heat wave that’s sent temperatures above 90 degrees F in the Midwest and Northeast earlier this month continued this week.

In Madison, Wis., for example, highs are expected to reach 87 degrees Friday before dropping to the low-80s over the weekend and early next week, according to the Weather Channel’s Web site.

U.S. milk production has bounced back after declining last year when prices crashed to the lowest levels in a decade. For 2010, the USDA projects milk production at a record 191.2 billion pounds, up 1 percent from 189.3 billion in 2009.

The quick production reversal has puzzled some dairy industry observers, but Kurzawski and Meyer have a couple theories on why it’s happening.

Dairy producers may be ramping up capital investment because futures prices suggest milk will trade above $14 per hundredweight through next year, the brokers said.

Additionally, “producers are doing their best to build a milk production base at any cost, with the expectation that a supply-management program will be implemented next year,” Kurzawski and Meyer said.

Milk prices may retain an upward bias in coming weeks as supplies tighten, Kurzawski and Meyer said.

During the past month, Class III milk futures shifted to “backwardation,” meaning prices for closest-to-the-present contracts, such as August, climbed above deferred contracts, such as December.

Futures market backwardation usually happens during commodity shortages or when demand exceeds supply, pushing nearby prices higher. Typically, deferred prices are higher.

December milk fell 12 cents to $14.60 Tuesday, 35 cents below August futures.

“There is more uncertainty surrounding the nearby supply-demand situation… so the concern and the premium are being worked into the nearby prices,” Kurzawski said in an e-mail. “The structure of the market is suggesting more price strength.”