On Demand
Unless you've been living under a rock, you know that the ammunition market is seeing unprecedented demand. As a result most calibers are extremely scarce…and extremely expensive when you do find what you’re looking for. To provide a little perspective, let’s consider some numbers and do a little math (and I hate math).
For starters, we already had something like 120 million gun owners in the United States prior to 2020, and according to the National Shooting Sports Foundation, the US ammunition industry produced 8.7 billion rounds to feed those guns. If you divide 8.7 billion rounds of ammo by 120 million gun owners, that only comes to 72.5 rounds of ammo available per gun owner (not per gun). Now, add to those ranks an estimated 8 million new gun owners, and that 8.7 billion rounds of ammo gets spread even thinner (about 68 rounds per gun owner). In fact, if every new gun owner only bought a single box of 50 rounds, that’s still an additional 400 million rounds worth of demand.
But the truth is that we are way past anything like normal demand. What we are seeing is people who will never shoot 1,000 rounds through that brand new pistol buying ammunition by the case…or cases. So what happens if even half of our 8 million new shooters decides to buy a case of ammo, instead of just a box? One case of 1,000 rounds times 4 million new shooters comes to an additional 4 billion rounds of ammo which need to be produced to satisfy that demand. That’s a nearly 50% increase over normal production, and that doesn’t even take into account the ammunition demands of the existing gun owning population. Imagine if even half of those people all decided to buy a single case of ammo…60 million gun owners times 1,000 rounds comes to another 60 billion rounds of ammunition. If you think the ammunition industry can snap their fingers and spin out what equates to over seven times their normal production…think again.
Manufacturing just doesn’t work that way. Manufacturers (of ammo, or anything else) simply do not set up their operations with seven times their needed capacity, and then leave 85% of that capacity sitting unused and idle. Manufacturing capacity translates into things like facility space, machinery, machine operators, and raw materials…all of which cost a lot of money. A manufacturing operations manager who wasted resources like that wouldn’t have a job for very long.
Which brings us to the great gun and ammo panic of 2020 and 2021 and…beyond? The ammunition industry simply cannot generate the amounts of ammo we are demanding from them. It isn’t possible. “Fine,” you say. “Why don’t they just build more factories?” Again, even if they wanted to, it isn’t that simple. It would take an ammunition company years of planning and billions of dollars to build a new facility (or expand an existing one), so even if they started the process of expanding today, we wouldn’t see any benefit from the added capacity anytime soon. And then there’s the fact that at some point demand is going to subside. And at that point, the ammunition company which invested in that new factory no longer needs the capacity…but they still have to pay for it.
Abandoned Peters ammunition factory in Cincinnati, Ohio.
“Fine,” you say. “But they still don’t have to raise prices like this. They’re gouging us!” Actually, with this level of excess demand, they do have to raise prices. The ammunition makers, like most other manufacturing operations, make their production plans well in advance, usually a year or more. These plans are based on expected sales and raw materials are ordered to align with those plans. Many of the raw materials used in ammunition manufacturing such as copper, lead, and brass are purchased on the commodities market, and prices can fluctuate greatly based on demand. In a “black swan” demand spike like the current one, which is well in excess of anything that ammo makers could anticipate, they now have to go out and buy more of these commodities on a competitive open market…at higher prices due to the much higher demand. This means ammunition is now more expensive to produce than under normal demand, which means that the price of ammunition necessarily goes up.
“Fine,” you say. “But I don’t believe any of that stuff. I read on the internet that ammo companies are deliberately holding back production and stockpiling ammo to create a shortage so they can make more money! It’s a conspiracy!” OK…making more money by selling less product? It doesn’t really work that way. Besides, if the ammo companies could simply increase their profits by producing and selling less product, why wouldn’t they do that all the time? Why deliberately make and sell more ammo and make less money some of the time, instead of pulling this cool stockpiling trick as normal procedure and get rich? If your answer is that they can’t do it all the time because people won’t always pay those prices, you’re beginning to figure it out. It’s the demand which makes the difference. In times like these when demand is though the roof, pricing is what ensures that there will be a supply. Do you think there would be any ammunition available if it were still being sold at pre-panic prices? Let’s face it: if you could still buy a case of 9mm for $140, there’d be not a single round available anywhere. But priced as it is, there is some still out there…if you are willing to pay for it. But once demand falls off as people stockpile more ammo than their grandkids will ever shoot, they’ll no longer be willing to pay $900 for that case of 9mm ammunition…and prices will fall.
It is nothing more than supply-and-demand economics, and for a better explanation than I can give, I’d encourage you to read the short article by the late economist Walter Williams linked below. In the meantime, understand that when our demand so outstrips the capability of an industry to keep up, we’re going to feel it at the cash register. It’s as simple as that.
“It’s Not Gouging, It’s The Free Market” - Walter Williams
