Saturday, June 07, 2014
The Coming Crash in Ammunition Prices
The Obama caused bubble in ammunition prices seems ready to bust. Over the last few years people have seen ammunition prices double or triple. Handgun and rifle ammunition has been hard to find at times. .22 long rifle ammunition tripled in price over the last 18 months. People would line up to buy ammunition at prices two and three times the level that they were just two years ago.
All of that is about to change. Ammunition supply looks as though it is ready to catch up with demand. Centerfire pistol and rifle cartridges are available on most store shelves. When I walked into a local Wal-Mart this morning, their were over 30 signs on the ammunition case indicating a rollback of prices by 10-15%.
In classic economic fashion, the bubble was fueled by actions of the Federal government. Many federal agencies bought enormous quantities of ammunition. While the quantities were only a small percentage of total production, the raw figures fueled conspiracy theories. Obama administration actions fueled fear of coming shortages, gun bans, registration of ammunition sales, even potential low level warfare. All of this led to the current bubble of ammunition sales.
In response, the economy reacted the way that free markets are supposed to work. Ammunition suppliers started running their manufacturing plants day and night, adding additional shifts. Importers scoured the world markets, trying to buy everything they could to satisfy the insatiable demand. Foreign manufacturers bumped up their production to try to fill the desire for more and more ammunition. Ammunition production was at the highest level ever for small arms, short of war.
But unlike during war, this ammunition was not being fired in combat. Most of it was not being fired at all. It was being stored against future need. Very little was actually being used.
There are limits to this sort of demand. I gave away a couple of thousand .22 rounds to make a point. A person who only had 37 .22 shells out of a box of 50 is well justified in wanting a thousand or two, or a case of 5,000 "just because". Once they have the 5,000, their desire for more becomes less. Then demand drops, likely below pre-bubble levels for a while.
In the meantime, manufactures cannot stop production instantly. They have orders in the pipeline. They have supplies coming in that they have no storage space for. They have employees that they have trained and who they do not want to lay off. For all these reasons, demand drops suddenly, but supply cannot drop as quickly. As supply took a while to spin up, it will take a while to spin down.
This means that retailers and wholesalers will be saddled with a glut of merchandise that they cannot sell at the current high prices. They will have to put it on sale. Lower prices bring about the expectation that prices will fall even further. The prices crash.
That is when a prudent person buys what they want, at very good prices. Demand will not stay at the artificially low prices of the crash. The new crop of urban, hip, shooters will want to feed their equipment, and the new demand will be higher than it was before the bubble, but it will take a while to settle out.
Metal prices have already fallen from the highs of the bubble. Copper and lead are far lower than they were. You will know that the bubble is close to the bottom when you see .22 LR on sale for below 4 cents per round. At the lowest, we might see .22 cartridges below $10 for 500.
©2014 by Dean Weingarten: Permission to share is granted when this notice is included.
Link to Gun Watch
Here is another article saying much the same:
Mark Nale: Seeking answers to why rimfire ammunition is so hard to find