While dairy farmers obsess over milk prices and watch feed costs like hawks, there’s another expense quietly draining thousands of dollars from their bottom line every month — and most don’t realize how exposed they are until it’s too late.
The fuel pump doesn’t announce itself with the drama of a milk price crash, but in 2026, diesel has become one of the most dangerous unmanaged risks on the dairy farm balance sheet.
For Ken McCarty, co-owner of McCarty Family Farms in Rexford, Kan. — the 2025 Milk Business Leader in Technology Award winner — fuel isn’t just another line item on the budget; it’s the lifeblood of an operation that milks thousands of cows across multiple states, running feed trucks, tractors and skid steers around the clock.
And in an era of global energy volatility, leaving that lifeblood to the whims of the spot market is a risk McCarty refuses to take.
“We have lived through times like this in the past and have no desire to repeat it,” McCarty says.
The Hidden Cost of Doing Nothing
Most dairy producers obsess over milk checks and component values. They track feed costs down to the penny. But fuel? That’s often treated as an unavoidable expense — something you fill up when the tank runs low and hope for the best.
That mindset is costing farms thousands of dollars they can’t afford to lose.
On a modern dairy operation, equipment never stops. The sheer volume of total mixed ration (TMR) moved daily and the constant management of manure require a fleet that consumes thousands of gallons of diesel every week. For large herds like McCarty’s, a 50-cent spike in diesel can derail a quarterly budget. For a 500-cow operation, even a 25-cent jump can mean the difference between breaking even and bleeding red ink.
“That half-dollar move isn’t just an inconvenience,” McCarty explains. “It represents a massive shift in capital that could have been reinvested in herd health, technology or labor.”
The problem is that most producers only think about fuel when they’re writing the check at the pump. By then, it’s too late. The price is what it is, and the budget takes the hit.
But what if there was another way?
The 18-Month Strategy: Locking in Stability
While many dairy farmers wait for a good day at the local co-op, McCarty and his team are looking 12 to 18 months into the future. They don’t view fuel procurement as a single transaction but rather as a continuous process of layering forward contracts to lock in prices before volatility strikes.
The process begins with data. Working closely with their fuel supplier, the McCarty team evaluates historical usage patterns. But they don’t just look backward; they account for upcoming changes. An expansion in acreage? A shift in equipment efficiency? A change in the beef-on-dairy program that might increase hauling requirements? All of it gets factored into the forecast.
Once the known demand is established, the layering begins. As forward months become available on the market, the McCarty team books physical gallons. The goal is to reach approximately 90% coverage by the start of the budget year on Jan. 1.
By the time diesel prices spike — and they always do — McCarty Family Farms has already locked in the bulk of its fuel needs at prices established months earlier. The farm isn’t gambling on the market. It’s managing risk.
It’s Not About Winning the Market; It’s About Surviving It
In a world of high-frequency trading and market gurus, it’s easy to fall into the trap of trying to time the bottom of the fuel market. McCarty is quick to dispel that notion.
“We have never viewed this as a money-making strategy,” he says. “Instead, it is purely a risk-mitigation strategy.”
For McCarty, the goal isn’t to hit the absolute lowest price of the year — a feat that’s more about luck than skill. Instead, the benchmark is historical consistency. If the farm can land in the bottom third or bottom half of the five- to 10-year historical average, or even just maintain consistency year over year, the strategy is a success.
This consistent-cost model allows the farm to set its milk margins with confidence, knowing that one of the largest variable inputs on the farm is already settled.
Megan Roberts, ag economist with Compeer Financial, agrees.
“Risk management strategies, including hedging, are less about predicting the market and more about carefully managing exposure, using consistent, incremental decisions to smooth volatility in a way that fits the needs of your dairy operation,” she says. “Every farm is different, but in today’s environment, having a clear plan in place and following it with discipline is a wise strategy.”
Exposures You Can’t Control
Even with 90% of consumed fuel locked in, McCarty acknowledges the limits of the hedge. The farm remains exposed to indirect fuel costs — the market effects on purchased goods and, perhaps most significantly, milk freight increases.
This distinction is crucial for producers to understand. Locking in the diesel for your own tractors doesn’t protect you from the fuel surcharges applied by the third-party haulers moving your milk or the trucks delivering your distillers grains.
It’s a sobering reminder: No matter how disciplined you are, you can’t hedge everything. But that reality only reinforces why being aggressive on the fuel you can control is so important. It narrows the window of vulnerability on the variables you cannot control.
Efficiency: The Ultimate Hedge
While forward contracting provides financial protection, McCarty is also focused on the physical side of the equation: consuming less. Every gallon of diesel not burned is a gallon that doesn’t need to be hedged.
The farm is constantly searching for ways to reduce its energy footprint. This includes everything from optimizing feed routes to reduce idling time to investing in newer, more fuel-efficient equipment.
In this view, energy efficiency is the ultimate long-term hedge. It’s a permanent reduction in exposure that pays dividends regardless of what happens in the energy markets.
“We are constantly searching for ways to consume less fuel and energy in general as an additional method of reducing our exposure to energy markets,” McCarty says.
What About the 500-Cow Farm?
The McCarty scale is vast, but the principles are entirely scalable. Whether you’re milking 40,000 cows or 500, the fundamentals of fuel risk management remain the same.
Start by understanding your consumption. How many gallons does your operation burn in a typical month? What drives that usage — feed delivery, manure management, field work? Once you know your baseline, you can start having conversations with your fuel supplier about forward contracts.
You don’t need to lock in 90% of your fuel needs like McCarty does. Even covering 50% or 60% of your annual usage can provide meaningful budget stability. The key is to have a plan and stick to it.
“Risk management isn’t about hitting the top or the bottom of the market,” Roberts says. “It’s about avoiding the economic risk of doing nothing.”
The Lesson: Protect What You Can
In 2026, dairy margins are found in the details. Milk prices are volatile. Feed costs are unpredictable. Trade policies are in flux. But fuel? Fuel is one of the few inputs where a disciplined producer can take control.
By locking in prices months in advance, dairy farmers can remove one major source of volatility from their balance sheets. They can budget with confidence, knowing that a sudden spike in diesel won’t derail their profitability.
The McCarty approach to fuel is a reflection of their approach to dairy farming as a whole: disciplined, data-driven and focused on the long game. By taking the volatility of the energy market off the table, they can focus on what truly drives the farm’s success — the health of the cows and the quality of the milk.
In a year where everything feels uncertain, the lesson from McCarty Family Farms is clear: Protect what you can, manage what you must and never leave your margin to chance.
Diesel prices may not grab headlines like milk checks, but they’re quietly eating into dairy farm profits. Forward-thinking producers like McCarty are proving that fuel doesn’t have to be a gamble — it can be managed, hedged and controlled.
In an industry where every penny counts, taking control of the fuel pump might be the smartest move a dairy farmer can make in 2026.
