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Is the Current Ammo Shortage Fake?

Is the Current Ammo Shortage Fake?

If we can find ammo in our neighborhood prices have shot up: 9mm is going for $35-40 a box on cheap brands, and .223/.556 is around $20 a box. Those prices are actually pretty decent compared to what we have seen online. We planned ahead and were able to obtain a comfortable supply before prices got so high, but we don't have enough to practice as much as we would like. Local suppliers have very limited availability even if we wanted to pay the inflated prices. So why is there a shortage causing prices to spike?


Everything we have been reading says that ammo manufacturers are producing as quick as they can. Despite this, there is no doubt an ammo shortage right now. How can that be? The ammo shortage has been going on long enough that gun owners are wondering if prices will ever return to normal, and if the ammo shortage is even real. Here are a few theories on where the ammo is, and why the price is so high.


The Government is Buying Up Rounds to Disarm Protestors


One suggestion we saw on a forum was that agents were buying up rounds to disarm enraged leftists or crazy conservatives (depending on who was talking) who might engage in political violence post election. Welp, the election has come and gone and we have not seen anything yet save for a tame Capitol Hill protest.


The same conspiracy could have been said during the BLM riots where we all saw images of people in the streets burning buildings. We don't buy this theory. Most of the rioting and violence we have seen during the past year was opportunistic. Sure, many of the perpetrators were armed but their purchasing would have been such a small percentage of overall sales that it wouldn't create the shortages or price spikes we have seen.


The Government is Preparing for War


We all know that our relationship with China is frictional, and some signs do suggest that something strange is brewing. China has been engaging in plenty of military training exercises, stockpiling warships and building a previously unseen war fighting capability. Then there are the constant tensions and clashes between China and India along the Himalayan border that hint of heightening unrest.


So war is possible, but the government usually has their ammo orders in to manufacturers according to a contract well in advance. Manufacturers then plan for this production and can serve both public and government consumption. It's doubtful that the US Military or Security agencies could suddenly up their orders without getting noticed - and we have not found or seen any evidence that orders have been increased. If you know better, let us know.


Gun Shops are Holding Back Stock and Colluding on Price


If we had a shop and suddenly a bunch of new panic buyers flooded our shop, we are going to get as high a price for things as we can - that just makes business sense. So there is probably a little 'collusion' going on and we have seen stories of dealers who claimed they were out of stock but were caught offering pallets of ammo at huge markups on auction sites. That's not cool, but not every gun shop owner is doing this. We even saw one article showing that a gun store in Indiana sold out an 80,000 round shipment on election day in just 30 minutes.


We think that most gun stores are doing their best to cover their expenses at the lowest prices they can. Gun stores in our area have been fair on the pricing by selling around MSRP, but not above, and offering rounds below what we find online. But the truth is that the markup on guns is pretty small and most new stores go out of business within a year, gun stores included. Now is a prime time for an owner to make a little extra so that he can get through the downtimes.


A business costs money to run and with everything in short supply, a shop owner needs to raise his prices on items he does have for sale to generate the same amount of profit to cover his overhead. Imagine you are selling 50 guns a month and that pays the rent, but guns are on backorder and you only have 25 to sell. To cover the same expenses - profit margins need to double. Or you can raise the price on the limited amount of ammo you have to cover expenses. Or do a little of both. A frequent and regular customer might be able to swing a deal if you just ask.


There is No Actual Shortage


It's possible that there isn't really a "shortage" at all. Manufacturers claim to be producing at full capacity, meeting the same production targets as they always have. So why is ammo in short supply? We think, in economic terms, we are just experiencing what's called a deadweight loss. It's not a perfect example, but an arguable explanation.


The market for ammo is out of equilibrium due to a few factors. 2020 was a record setting year for gun sales. That means that there are a lot of people buying ammo that never did before and those new gun buyers created a small but notable new demand, but that demand is likely to wane later. Sure, a few new gun owners will become 'gunbros' and stockpile ammo but that's a very small percentage. It's the veteran gun owners who created a monopoly by hoarding every round they can get, causing the price of ammo to spike and apparent shortage.


We are not knocking anyone, but it's not fair to blame new gun owners as the only cause of the price spike and temporary shortage. And we do think it's just a temporary shortage. Once new gun owners have their requisite rounds to feel comfortable, you'll see a drop in demand and then the guys sitting on thousands of rounds will stop buying when the secondary market collapses and they feel they have enough (or can't afford anymore ammo).


So in short, the demand curve has shifted but not that much. This means that the 'shortage' will last a little longer - probably though the summer of 2021 at least - but will come back to normal. For a company to make more ammo they would need additional tooling and manufacturing abilities. That takes time. Most likely a company isn't going to invest in all of that infrastructure unless they can be sure it's worth it in the long term. Most likely a lot of the current demand is temporary and no manufacturer is going to spend the money on a new building if later, when the panic buying stops, it wont be needed.


Conclusion


The current ammo shortage is real but most likely temporary. How temporary is the question. We think that ammo sales will cool once new entrants to the market have their fix and hoarders fill up, but we fully expect ammo prices to stay high through late 2021.


Of course, a lot of things could add new technicalities to the equation such as ammo taxes, ammo registration, etc. One thing we will bet on is that ammo prices are never going to be as low as they once were - we the people just proved that we are willing to pay a higher price, essentially stabbing ourselves in the foot. Government is watching to see how a tax (price hike) will fly, and manufacturers are sitting on the edge of their seats wondering if they can maximize profits.

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