Ammo Shortage

T

The Sound Guy

Pursuit Driver
Pretty good article in Shooting Illustrated on the shortage. I didn't realize that the DOD owned their own factory for ammo.

Shooting Illustrated

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What caused it?

The simple explanation is that demand exceeded the supply, then continued to exceed the supply. But to understand how that happened you have to go a little deeper. According to Jason Vanderbrink, President of Federal, CCI, Speer and Remington, before the COVID-19 pandemic, there was considerable excess capacity in the ammunition market.

Manufacturers could make more than they could sell, so supply was abundant and prices were low. You could order a case of 9 mm off the Internet for $200. Manufacturers were prepared for an uptick in sales that normally accompanies a presidential election, but the excess capacity would have been enough to cover that.

2020 had other ideas. The first was the COVID-19 pandemic. Then a summer of civil unrest that sometimes turned violent. A hotly contested presidential election, and then the party of gun control having control of both houses of Congress and the Presidency.

Any single one of those would have spiked demand, but all these factors happening in rapid succession was more than the market could bear. Partly because the NSSF estimates that 7 million new gun owners entered the market in 2020. As Vanderbrink pointed out, if those 7 million new gun owners each bought 100 rounds of ammo, that's 700 million rounds that the market needs to produce.

To put that in context, the entire commercial market in 2018 made approximately 8 billion rounds. An 8.75 increase in demand wouldn't shut everything down, but when it's added on top of the demand created by all the other factors, it becomes too much.

How high is demand?

During a media presentation at Virtual SHOT Show 2021, Winchester said that if they stopped taking orders for .22 LR right now, it would take 2 years to fill all the back-orders. In December, the Vista family of companies, which comprises Federal, CCI, Speer, and Remington, announced they had a $1 billion backlog in orders. In the first 3 months of the COVID-19 lockdown, Winchester experienced a 17-percent surge in orders, which hasn't tapered off.

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What about the government?

To answer the question right off the bat, no, the government is not buying ammo and stockpiling it in a warehouse somewhere to keep it off the market. The largest government consumer of ammunition is the Department of Defense, and the majority of their ammo comes from the Lake City plant, which is currently administered by Winchester. Lake City is owned entirely by the government—all the machines, all the land, etc. The government then contracts its operation to private companies, with Winchester taking over for Northrop Grumman in 2020.

Other federal agencies and local LE agencies do source from private manufacturers, but they're getting squeezed too. Federal contracts are public record, and there has been no unusual ammo related purchasing activity since the shortage began in March. Local LE agencies don't have the purchasing power to cause a shortage like this, unless there was some secret meeting of all the police chiefs in the country to secretly buy all the ammo (there wasn't). While it might feel good to believe there's some sinister force behind the ammo crisis, the answer is a slightly more complicated version of "supply and demand."

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More info in the full article.
 
On a side note, went to Cabela's today to get a gun safe. Kept looking for the ammo area and couldn't find it. Asked and was pointed to a 3' end cap. They said anything left after the first 30 minutes after the ammo pallet comes out is left there. He said they don't usually have to move much.
 
I still have questions. Unless manufacturers don't think this trend will last, it still makes no sense that the market wouldn't have responded by now and did whatever it took to make guns and ammo. Clearly, the demand is driving prices up and profit margins should be great.

I guess it's just the capitalist in me.
 
I think they were waiting to see who won the election and now that the liberals have won, they are not going to invest any money. I do wonder why we are not seeing more foreign ammo coming in.
 
Guard Dad said:
I still have questions. Unless manufacturers don't think this trend will last, it still makes no sense that the market wouldn't have responded by now and did whatever it took to make guns and ammo. Clearly, the demand is driving prices up and profit margins should be great.

I guess it's just the capitalist in me.
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I gave an explanation about that in another topic not long ago. Profit margins are a lot higher now than before thanks to the much higher demand. The shortage is created because the supply hasn't been increased. The supply won't be increased, not because of what party controls both houses in Congress and the WH. Supply won't be increased because it would decrease their profit margins. They would have to invest more money to assembly lines and hire more employees.

I don't buy the article's statement ammo manufacturers aren't going to increase production to meet the high demand because the Dems have the power now. If anything, the demand is even higher now that Biden is president and the Dems have both Houses. Don't be surprised to see the prices continue to increase.
 
Boss 302 said:
I gave an explanation about that in another topic not long ago. Profit margins are a lot higher now than before thanks to the much higher demand. The shortage is created because the supply hasn't been increased. The supply won't be increased, not because of what party controls both houses in Congress and the WH. Supply won't be increased because it would decrease their profit margins. They would have to invest more money to assembly lines and hire more employees.

I don't buy the article's statement ammo manufacturers aren't going to increase production to meet the high demand because the Dems have the power now. If anything, the demand is even higher now that Biden is president and the Dems have both Houses. Don't be surprised to see the prices continue to increase.
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That explanation only works if the market is not free.

In a truly free market, any start up or existing company is free to to jump in and fill the demand.

If the product here was butt scratchers, investors would be rushing to produce nose pickers at a healthy profit margin to satisfy the demand.

Something is preventing the free market from responding.
 
Guard Dad said:
That explanation only works if the market is not free.

In a truly free market, any start up or existing company is free to to jump in and fill the demand.

If the product here was butt scratchers, investors would be rushing to produce nose pickers at a healthy profit margin to satisfy the demand.

Something is preventing the free market from responding.
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The lack of primers, they are in limited production or are being hoarded by the big players.
 
Guard Dad said:
hat explanation only works if the market is not free.

In a truly free market, any start up or existing company is free to to jump in and fill the demand.

If the product here was butt scratchers, investors would be rushing to produce nose pickers at a healthy profit margin to satisfy the demand.

Something is preventing the free market from responding.
Click to expand...
I disagree with you. I'll use Vista Outdoors as an example, as they manufacture the Federal Premium ammo line. There stock on Nov. 18, 2020 was selling at 21.09 with a volume of 970.42K. As of today, the stock is at 34.14 with a volume of 1.11M. On Feb. 20, 2020, their stock closed at 9.40 with a volume of 419K. During the past 5 years, its stock hit its lowest value on Mar. 13, 2020 when it closed at 5.47. It has been climbing since Jun 5, 2020.

Olin Corporation manufactures Winchester ammo. Feb. 20, 2020 stock closed at 18.62 with a volume of 3.9M. Today it closed at 28.08 with a volume of 872K. What I find particularly interesting about Olin is their stock peaked at 38.60 on Jan. 12, 2018 and was pretty much on a steady decline, falling to 9.79 on Aug. 21, 2020 and since that time has been on the rise.

These are just two of the ammo manufacturers in this country and they are making a killing. You're thinking because the demand is so high and there is definitely a lot of profit being made by them; so why aren't investors investing to start new ammo manufacturing companies? Investors are going to go where they can see the opportunity for a good ROI. Right now, that return is with existing manufacturers. There are a lot of hoops one must jump through before even beginning to purchase everything needed for manufacturing and hiring hundreds of employees. The start up cost would be pretty high and now with a liberal president and the liberals in control of Congress investors would be very leery of investing in such a startup. What if a new ammo company started operations in September and then Congressed passed legislation creating a huge tax on ammo purchases? That definitely would cut into sales wouldn't you think? The chances of that new company being successful declined significantly. The bottom line is the risk right now for such startups is too great.

I discovered something interesting when researching this. Olin's stock has been on the rise since Aug. 21, 2020. What significant things happened that day to increase the demand for ammo? Biden accepted the presidential nomination that day and 73 Republicans came out and endorsed him.

Vista's stock has been on the rise since Jun 5, 2020. What significant things happened then? Those "peaceful" protests where destroying and looting the property of others began spreading in major cities all across the country.
 
I still believe the "shortage" is due to a greatly increased demand and here's a logical example: If any of us saw 5 boxes of 9, 40, 45 or 223 on the shelf at Academy...how many would be on the shelf when we left the store? None....the answer is none. If we didn't need them all we'd call a buddy who does and we'd wait at the shelf until he got there.
 
I think they also see the possibility of a large Liberal ammo tax not only increasing demand now, but cutting the demand considerably if it's passed.

They do NOT want to have just invested in excess capacity in that case. That may be your capitalism stopper right there. Govt interference in the market has killed many a business.

Not to mention many of them would need loans to expand production and the banks have been refusing to do business with firearm's manufacturing at Soros' bidding.
 
Boss 302 said:
I disagree with you. I'll use Vista Outdoors as an example, as they manufacture the Federal Premium ammo line. There stock on Nov. 18, 2020 was selling at 21.09 with a volume of 970.42K. As of today, the stock is at 34.14 with a volume of 1.11M. On Feb. 20, 2020, their stock closed at 9.40 with a volume of 419K. During the past 5 years, its stock hit its lowest value on Mar. 13, 2020 when it closed at 5.47. It has been climbing since Jun 5, 2020.

Olin Corporation manufactures Winchester ammo. Feb. 20, 2020 stock closed at 18.62 with a volume of 3.9M. Today it closed at 28.08 with a volume of 872K. What I find particularly interesting about Olin is their stock peaked at 38.60 on Jan. 12, 2018 and was pretty much on a steady decline, falling to 9.79 on Aug. 21, 2020 and since that time has been on the rise.

These are just two of the ammo manufacturers in this country and they are making a killing. You're thinking because the demand is so high and there is definitely a lot of profit being made by them; so why aren't investors investing to start new ammo manufacturing companies? Investors are going to go where they can see the opportunity for a good ROI. Right now, that return is with existing manufacturers. There are a lot of hoops one must jump through before even beginning to purchase everything needed for manufacturing and hiring hundreds of employees. The start up cost would be pretty high and now with a liberal president and the liberals in control of Congress investors would be very leery of investing in such a startup. What if a new ammo company started operations in September and then Congressed passed legislation creating a huge tax on ammo purchases? That definitely would cut into sales wouldn't you think? The chances of that new company being successful declined significantly. The bottom line is the risk right now for such startups is too great.

I discovered something interesting when researching this. Olin's stock has been on the rise since Aug. 21, 2020. What significant things happened that day to increase the demand for ammo? Biden accepted the presidential nomination that day and 73 Republicans came out and endorsed him.

Vista's stock has been on the rise since Jun 5, 2020. What significant things happened then? Those "peaceful" protests where destroying and looting the property of others began spreading in major cities all across the country.
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Yes, they are making a killing. But if they believed this trend was going to continue, they would expand and make even more profits.

Or another entrepreneur would jump in to ride the wave. Look at most any non-patented product out there that becomes wildly popular. Almost overnight, everyone is manufacturing them and they are plentiful.

Take FitBit for example. Now Garmen, Apple, and several other large companies are making fitness witches, not to mention probably of thousands of Chinese knockoffs on Amazon.

My guess is that either the market thinks this sales spike is temporary, or there are some regulations that either limit production or keeps new companies from jumping in.
 
Guard Dad said:
Yes, they are making a killing. But if they believed this trend was going to continue, they would expand and make even more profits.

Or another entrepreneur would jump in to ride the wave. Look at most any non-patented product out there that becomes wildly popular. Almost overnight, everyone is manufacturing them and they are plentiful.

Take FitBit for example. Now Garmen, Apple, and several other large companies are making fitness witches, not to mention probably of thousands of Chinese knockoffs on Amazon.

My guess is that either the market thinks this sales spike is temporary, or there are some regulations that either limit production or keeps new companies from jumping in.
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Your example using FitBit does not apply because that is not a product subject to government regulations, nor is it a product Democrats would like to see become difficult for consumers to acquire.

There are a lot more companies manufacturing ammo than there are a product like FitBit. There's a list of American ammo manufacturers here. You have to remember that investors want to see a return on investment. The investment for increasing production does not guarantee the ability to increase profits because your operating expenses go up as well. Take into consideration as well this is a product the Democrats in Congress would like to see become difficult for consumers to purchase and that party has control of the WH and Congress. You have said in the past that you wouldn't be surprised for a Democratic controlled Congress to pass legislation that would create a tax so high on ammo that it would make it difficult for many to purchase it.

Taking all that into consideration, the risk of such investment is very high. It's far safer for investors to invest their money buying stock in existing ammo companies than it is for increasing production that would increase the available supply. It's Econ 101.
 
Boss 302 said:
Your example using FitBit does not apply because that is not a product subject to government regulations, nor is it a product Democrats would like to see become difficult for consumers to acquire.

There are a lot more companies manufacturing ammo than there are a product like FitBit. There's a list of American ammo manufacturers here. You have to remember that investors want to see a return on investment. The investment for increasing production does not guarantee the ability to increase profits because your operating expenses go up as well. Take into consideration as well this is a product the Democrats in Congress would like to see become difficult for consumers to purchase and that party has control of the WH and Congress. You have said in the past that you wouldn't be surprised for a Democratic controlled Congress to pass legislation that would create a tax so high on ammo that it would make it difficult for many to purchase it.

Taking all that into consideration, the risk of such investment is very high. It's far safer for investors to invest their money buying stock in existing ammo companies than it is for increasing production that would increase the available supply. It's Econ 101.
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I read this as you are agreeing there are government regulations that are making it difficult for existing companies to expand or new companies to jump into the business.
 
Guard Dad said:
I read this as you are agreeing there are government regulations that are making it difficult for existing companies to expand or new companies to jump into the business.
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I think he is saying the risk is too high of the government regulating it into a situation where they could no longer sell the product, ammo, they produce.

No investor is going to put up the capitol to start a new factory that produces it, even though right now Remington, announced they had a $1 billion backlog in orders. In the first 3 months of the COVID-19 lockdown, Winchester experienced a 17-percent surge in orders, which hasn't tapered off.
 
In August, Guns and Ammo reported that while lots of companies in the US make ammo, only 4 companies make primers.

Federal, CCI, Remington and Winchester.

All the cases, powder and slugs in the world are useless without the specialized primers to complete the round. No one is going to add any capacity unless they can get the primers to complete the rounds.

The article said that a shipload of primers was on the way from Europe, but would take a while to get here, get unloaded and sent to ammo producers.

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Internationally, primers are manufactured by several firms in different parts of the world. Armscor in the Philippines, for example, Sellier & Bellot in the Czech Republic, Fiocchi in Italy and JSC in Russia are some of the more prominent companies. An industry insider told G&A that several million primers are currently en route from Europe to the U.S. by way of ship, which may help meet at least some of the demand for loaded ammunition. Still, those primers need to arrive, be offloaded, clear customs and then be distributed to the various manufacturers who can use them to produce ammunition. This will take time.

Primer manufacturers are working hard to feed the market. “We continue to operate at full capacity and are committed to meeting the current strong demand for ammunition and primers.” Federal representatives told G&A. Remington is also working overtime: “We are producing at record levels to attempt to satisfy the unprecedented demand for primers in support of the hand loading consumer, our own loaded rounds, and our industry partners loaded rounds.”

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Guns and Ammo

Guess it's a good thing I got an extra box of black powder primers when I did.
 
There are a lot of valid points in these post. Politically the left would absolutely love to create any situation where ammo is scarce or cost prohibitive. From a business stand point the market will charge what it can bear so a shortage of product will increase the value which in turn increases profit. Over all in this case of shortage I think it is a much simpler explanation of supply and demand. During the last Springs unrest prior to the election and with the election of Sleepy Joe gun sales have skyrocketed and so naturally demand for ammo has followed suit.
 
Far West said:
I think he is saying the risk is too high of the government regulating it into a situation where they could no longer sell the product, ammo, they produce.

No investor is going to put up the capitol to start a new factory that produces it, even though right now Remington, announced they had a $1 billion backlog in orders. In the first 3 months of the COVID-19 lockdown, Winchester experienced a 17-percent surge in orders, which hasn't tapered off.
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You got it right. The risk is too high for that investment right now with the Democrats in control.
 
Guard Dad said:
I read this as you are agreeing there are government regulations that are making it difficult for existing companies to expand or new companies to jump into the business.
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You have it partially correct. Right now, there are no regulations that make it difficult for existing companies to ramp up and new companies to enter the market. It's the threat there will be stringent regulations passed by the Dems that exist that keeps investment for expansion at bay.
 
The ammo shortage is over. Just got off the phone with AO in Smyrna about the availability of 9mm and he said they had plenty, asked about the cheap target stuff, he’s answer “$39.99 a box for the cheap stuff”.
And I thought gas was high.
 
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