CHICAGO — U.S. milk production is headed for the biggest contraction in 12 years as a drought-fueled surge in feed costs drives more cows to slaughter.

Output will drop 0.5 percent to 198.9 billion pounds in 2013 as the herd shrinks to an eight-year low, the U.S. Department of Agriculture estimates. Milk futures have risen 45 percent since mid-April and may advance at least another 18 percent to a record $25 per 100 pounds by June, said Shawn Hackett, president of Hackett Financial Advisers.