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Whats up with ammo?

Discussion in 'Ammunition & Reloading' started by Flakman5000, May 20, 2009.

  1. Flakman5000

    Flakman5000 Oregon New Member

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    OK, I am a business major and an avid shooter, I've taken a lot of economics classes and so this thread is putting those concepts to the ammo industry.

    First, the ammo industry is highly competitive. Meaning that the manufactures of ammo cannot set a price. There is very little if any price setting ability in a nearly perfect competitive market such as the ammo industry, since its easy for a new firm to move in and produce ammunition. The barriers to entry are not many.

    Second, in a situation we find ourselves in today, we see that demand outweighs supply. In this scenario, one should see companies in the short-run make abnormal profits, but old companies should increase their output at some point and new firms should move in to increase supply. On the reverse side of that, if there was less demand, we would see firms move out of the market and supply dwindle.

    In the short term it makes sense to see what we are seeing with ammo, but not in the long run. Why is it then, that this shortage has continued for so long?

    There are many explanations that could render this scenario. I do not have the answers but am putting those possibilities out there:

    1: The resources could be in short supply. How easy is it to obtain brass? Are there substitutes which are cheaper and more easily available? remember we still have 2 wars going on and probably a third with Iran, so expect those resources to continue to diminish. Also, it is hard for a mining firm to extract more ore. It takes on average 10 years for one mine to increase its output, due to constraints such as specialized equipment, personal, and cost benefit analysis. So to say, the mining companies don't have a real incentive to increase production due to the fact that their resources are limited and they want to sell each OZ at the highest price possible.

    2. Collusive agreements may be possible if there are bottlenecks in the chain of distribution. This goes to the whole sellers that supply stores such as Bi-mart and Wally World, but it does not mean and I would seriously doubt that the retail outlets have anything to do with it, since there prices per box do not change. So where do we see prices change? At the FFL. The barriers to being a licensed FFL are many. It is costly to get licensed and open a gun shop. If to say the FFL where to collude and work with the suppliers it would be easy to take the ammo from wally world and Bi-mart and constrain supply artificially and start to set prices. Remember for ammo there should be no price setting ability if the market is running uncorrupted.

    3. New companies coming into the market may be hard pressed to do so in an economic downturn. First, is there an economic benefit to starting an ammunition company? Could those potential firms do something else and make more profit? Who knows? I don't, but there is a thing called capital structure that companies must abide by. Capital structure is the amount of debt compared to the amount of equity in a company. And to say, right now capital is hard to come by in the form of business loans, and there is no way what so ever that any company at this point in time could assure a bank that its cash flows and capital structure will stabilize after x amount of time once it has started up operation. Also, banks may not have the better opportunities and give money to other industries.

    These are just a few examples that are possible. there are more, but before making any one digest anymore of my talk, how about some replies.
     
  2. Anoldbaldman

    Anoldbaldman Oregon Member

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    How about the election or economy?
     
  3. aquariumjunky

    aquariumjunky Albany, Oregon Active Member

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    Don't forget secret gov't agencies working top secret plans to enslave the american people?!

    I have a minor in Econ myself and it all makes sense to me. People buy buy buy from forces such as election fear and now supply fear. So those with financial means are buying all they can when ever they can.

    People's funds and/or storage space for ammunition is running out (and also our commander and chief has not banned everything(yet) and people are feeling more confident it is not #1 on his agenda) and now we are able to find ammunition in stores on occasion. Ammo is in stores again not in abundane but you can find it. Before long I feel that shipments will start to remain in stores and they will again have stock. (not simply open box sell box on delivery day)

    Steven
     
    Last edited: May 20, 2009
  4. Randini

    Randini Salem Member

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  5. PDXGS

    PDXGS Aloha... yes, Aloha, Oregon Member

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    what they said-
    There are at least five other forces at play here:
    -the downturn in the economy
    -economic instability combined with a fearful population
    -regime change in the US led by someone with an anti-gun history
    -the US is fighting two wars
    -our govt.'s decision to supply the Iraqi army with I arms and ammoo
     
  6. Flakman5000

    Flakman5000 Oregon New Member

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    aquariumjunky I can't say your wrong with the buy buy buy mentality that is obviously occurring, but I do dispute that it plays as big a role as one may think. First, even if this is going on we should expect firms to increase supply. Second, the prices at major retailers haven't changed much if at all, so why is that?

    I should also point out that you guys are looking at the demand side. Think like a supplier.
     
  7. aquariumjunky

    aquariumjunky Albany, Oregon Active Member

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    What if a supplier is already at/near full production? It will cost millions to bring more equipment online to increase production significantly. These same supplilers I am sure have people with PhD's on staff looking at the supply/demand and can see that historically this demand is not going to be able to substain itself indefinately. (just a possibility) And they are probally getting great profits even if they are selling at the same prices simply being to sell all they can produce as quick as they can produce it.

    And also I don't know but I would assume that suppliers are probally under some sort of federal licence that would limit them without getting new licence from increasing sqft that is in production since that would change the terms of there permits.

    On a further note I have seen price increases from all but major retailers. And then some of them. I also know many times major retailors enter into pricing agreements to both not sell below a set price nor above a set price from the manufacture to help guarantee a constant supply of product.

    Steven

    (i like discussions like this reminds me of discussions about goat cheese from Econ311 and Stivers)
     
  8. Flakman5000

    Flakman5000 Oregon New Member

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    Fair enough, but I still don't know exactly why new firms don't move in. Anyhow, I don't know much about this, but a friend of mine found, somehow, that the manufactures are seeing that there is no increase to supply. If he reads this post and I'm sure he will, maybe he'll jump in and explain about the manufacturers. Anyways if that is true then it say's to me their seeing the same amount of orders come in regardless of the shortage.
     
  9. slythorne

    slythorne Western Washington Member

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    Why would you see new players in the game? The big guys know the bubble will burst with just a small uptick in supply. That is why they don't want to invest the millions on new machines. Why would a new player spend those millions instead when they don't have a foot in the door to keep them afloat once the bubble bursts? That, and I heard a theory that the suppliers of raw materials for the manufacturers have their own log jam and are also racing to fill the orders.
     
  10. bwells

    bwells Longview Member

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    +1. Even if they wanted to increase supply, it would take millions of dollars in equipment, new employees, and facilities. And it would take a long time for their suppliers to increase their supply, whether it's actual components or raw materials, because they'll have the same kinds of issues with equipment and facilities.
     
  11. eldbillbo

    eldbillbo clackamas New world samurai and a redneck none the less Bronze Supporter

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    Dude where have you been this has been discussed into the ground and many factors come into play such as the gooberment buying up all the primers

    any one with some skill can make bullets and recycle brass but primers are machine made without primers no one can even reload

    prices on .223 and 7.62 ect. has been going up ever since the war started a lot of guys thought hey beat the high cost of ammo ride it out shooting .22s which caused it to dry out as well

    surplus ammo has dried up thus demand for new ammo has risen

    some surplus such as 8mm have destroyed rather than imported

    the election has caused increase in gun sales more guns require more ammo

    ammo horders afraid that ammo with be smart coaded or heavily taxed or that it may just get banned stock piling.

    Maybe the gooberment is just seeing how much ya all are willing to pay for it to see how much they can tax it.

    Capitalist cleaning out the shelves to sell as higher prices

    ect. ect. ect.

    seen it read it over and over lets pound into the ground 1 more time


    this talk in it self leading to more hysteria and fear and anger have you ever seen so much anger , pissing and moaning on the gun boards ever before

    bottom line IT JUST SUCKS
     
  12. Warthog

    Warthog Turner, OR Active Member

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    Just thought I'd throw in my .2 cents on new players in the ammo market. The industry is heavily regulated, and it is uncertain times as much as it is a profitable one. Now would be a bad time in my opinion to try and break into a market that in normal years sees almost zero change in market share. With talk of government regulation and possible bans, I wouldn't invest, would you? On the shortage side its many different factors that all came together to create the perfect storm if you will. The governments of the world (not just ours) are all buying large amounts of ammo, anyone who has ever read a history book could tell you, a bad global economy is great for staring world wars.
     
  13. Silver Fox

    Silver Fox Puyallup, WA Well-Known Member

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    Check the recent historical commodities market, starting about April '08. Awhile back China was buying boatloads of copper, brass and lead (not to mention steel and other raw resources) they were purchasing the very materials needed for ammo and then the election hit and the purchasing spree started. Chinas economy has hit a wall along with the worlds and they have backed of on most of there purchasing. We are starting to see the trickle down effect of the availability of materials needed for ammo purchasing.

    My 2/100ths of a U.S. of A. Greenback

    SF-
     
  14. Armsdealer

    Armsdealer Keizer, OR New Member

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    Don't forget that there have been thousands of guns purchased recently. Some for current gun owners, some for new gun owners. The Oregon State Police has processed almost 75,000 background checks this year. It's only May! A gun is no good without ammunition.
     
  15. PosterGuy

    PosterGuy Hillsboro Member

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    OK, as an actual manufacturing supervisor, here's my take from that end. The election was in NOVEMBER. That was 6 months ago. So here's a manufacturing time line:

    October-November 08-wait out election

    November-January 09-try to guage LONG LASTING effect on ammo demand. In the mean time, increase production with existing equipment and personnel. This MAY increase your out put by AT MOST 20%. Companies don't magically sprout machinery and people to "just make more."

    January-Febuary 09-develop a plan to meet new demand.

    Febuary-March 09-recieve new equipment/hire new employees.

    March-April 09-train new employees and set up new equipment.

    April-May 09-Start new, higher level of production.

    So, in short, here is the gist:
    The manufacturing world DOES NOT turn on a dime. It takes planning, strategy, manpower, and money (which isn't exactly flowing from lenders right now) to increase production.
     
  16. Yosemite Sam

    Yosemite Sam Willamette Valley, OR Member

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    According to my dealer, who seems to have a pretty good view of the situation:
    • Factories are currently filling orders for foreign governments which they are required by law to fulfill. They are working 7x24 on these contracts.
    • A US gov't order was placed to run concurrently with the current contract orders. This has since been changed to run after the current contracts are fulfilled.
    • Manufacturers are using all the primers they make in their own ammo
    • Hoarders are only making the situation worse
    • There are a number of smaller issues, such as blocking shipments of some foreign made ammo for minor mislabeling problems, etc.
    • As someone else mentioned, a presidential order authorizing the destruction of all military brass, rather than recycling it. Fortunately, someone with half a brain discovered that this would make the military suffer, too, so this has been reconsidered.
    The situation is going to last some time, and we will see new prices when we can actually buy ammo again. Gone are the days of 9mm for $9/50.

    That's what I've heard. As much as I want to believe conspiracy theories, I just can't: There would be too many people involved to cover it up. Did we learn nothing from the X-Files? :)

    -- Sam
     
  17. bikemaniac1

    bikemaniac1 Portland Oregon Member

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    A few weeks ago my Dad delivered a semi truck load of brass to a CCI/Speer plant in Idaho. While there he heard something about them trying to use an empty building on their property as an expanded manufacturing location. Everyone hears something from someone who knows someone. Who's to know what's true or not anymore? All I know is that yes ammo is becoming more available but not what it should be. Every visit to BiMart they still never have any 22lr. It will be an interesting day of shooting this Memorial Day with less then 1,000 rounds of 22.
     
  18. Sun195

    Sun195 Pugetropolis, WA Well-Known Member

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    What should our expectations be around ammo during a time when we're fighting a war on two fronts? Did folks living during WWI/WWII/Korea/Vietnam expect to have easy access to ammo at reasonable prices?

    I'm unhappy about the price & availability of ammo like everyone else on here. However, given current circumstances, I wonder if we have a right to complain too much about something that is, for many of us, a hobby.

    Thoughts?

    BTW, don't forget to do something this coming Memorial Day to honor U.S. men and women who died while in the military service.
     
  19. bikemaniac1

    bikemaniac1 Portland Oregon Member

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    That makes sense for military calibers. There are many calibers not used by the military that are also affected. Last time I checked the military isn't using 30-06 anymore. There is some of that caliber available but not what it was a year ago.
     
  20. aquariumjunky

    aquariumjunky Albany, Oregon Active Member

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    They all basically use the same primers. it is the lynch pin if you know what I mean.

    can't make 30-06 if all the large rifle primers are in 7.62 rounds!

    Steven