Ammo Shortage

If you're a shooter or a guy who buys ammo for a police agency, you know that there's been a shortage of loaded ammunition and reloading components. That's no secret. However, the ammo market is a market like any other and it responds to market incentives. It helps if we do the research and try to make some rational assumptions.

Lots of folks are trying to assign conspiracy theories to the shortage, but it seems to be simply supply and demand. Over at Mr. Completely, we see one of the theories.

In short, the manufacturers are building lots of ammo, but the retailers aren't getting it. It appears to be disappearing BEFORE it gets to the stores. It's getting pushed into the pipeline at one end, but it's not coming out the other. ... It looks like somebody, somewhere, is sitting in the middle and soaking up most of the production. The military? Why would they be stocking up on calibers that they don't use? Law enforcement? Not likely.

Somebody in the middle is buying it before it gets to the retailers. Not likely.

If we go over to Michael Bane, who asked the same question at the NRA Convention, we learn that:

RE: Ammo companies, I asked the same question you guys did...can you increase capacity? Basically, they looked at me as if I'd beamed in from Uranus. "You know manufacturing, Michael!" one friend said. For those of you who don't, here's the Cliff Notes version — a minimum of five years to get an ammo factory up and running, assuming the permitting issues can be worked out. ... we're all working under the assumption that this is a bubble, and that regardless of the pricing of future ammo, the demand will eventually fall to a level consistent with what we've seen in the past plus the increase due to in new shooters. The wars will end; the bubble will burst and current capacity (with modest increases) will accommodate the demand.

That sounds more likely.

I remember reading just before our President was elected that the government had made a huge order for ammunition in military calibers. A huge order of things like .223, 9mm, .308, .50 cal, etc. I also heard that the major manufacturers were ramping up to fill that order. At the same time, we elected Obama and a lot of folks became concerned that he would ban guns or ammunition, so we started buying everything on the shelves. In short, demand increased over the short term, to the point where the supply chain was overwhelmed. Lots of folks started buying guns and ammunition. Demand increased. Not just quantity demanded, but demand itself. The whole curve shifted, to the point where increased prices couldn't fill the demand.

Then, we go to Tam's place and learn:

Production Capacity: The manufacturers are running full tilt. The only way they could make more ammunition is to build more plant, and they are not going to do that for several reasons. The first is that this bubble will contract sooner or later. Joe and Jane Sofaspud are going to realize that they really don't need 10,000 rounds of Winchester .45 in the basement, and that minivan payment isn't getting any smaller. They'll sell it to Annie Appleseed and Ivan Ipsc and demand will cool down.

Again, it's a bubble, folks. We've just got to ride it out. Go over to her place and read the whole thing, then come back here.

Look at it from the perspective of a manufacturer. He's selling all he can make and running his factory to capacity. That's a good thing. He's making money and keeping his people employed, but he doesn't want to open a new factory because of the financing and the permitting and lots of other good business reasons. Demand has increased and he'll probably be adding another line, but right now, he's trying to fill the supply chain and fill orders that are outstanding. As soon as this rush is over he can take time to rationally assess the market and do whatever is prudent.

The lesson here is that demand has increased and part of it is a bubble, and part of it is increased demand. All those new shooters who bought guns just after the election want to shoot them. The market is out of equilibrium and market forces will bring it into equilibrium. Supply will meet demand and the market will stabilize. It may not stabilize at prices we remember, but it will stabilize. The shelves will fill and you'll be able to go to the store and buy a brick of .22 or a box of .38s. It's just going to take a little time.

It's a market, folks, and it responds to market incentives. Things will calm down in several more months and we can start buying ammo and primers off the shelf without going into panic mode.