http://weaponsman.com/?p=8784

Ammo, Shortages, Economix

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The ammo shortage has passed beyond the normal hoarding one expects in a tightening market. We’ve seen that in crises from the gasoline shortages of the Ford and Carter years, to the toilet paper shortage in Venezuela today.

The gas shortages were created by supply interruptions — the Arab oil embargo of 1973, a fit of pique caused by the usual level of Arab military competence bringing defeat down upon their heads in the Yom Kippur War, and the Iranian cutoff of 1979, largely caused by the incompetence of the Carter Administration, although the Ayatollah deserves some share of the credit, or blame, also. Created by supply interruptions, the shortages were exacerbated by hoarding and government attempts at top-down solutions, and seemed to resolve themselves when hoarding was no longer rational behavior..

Those shortages were ultimately resolved by the market — which reset at higher prices each time. (If a market isn’t clearing, prices are not free-floating but sticky somehow).

The Venezuelan problem is, like the shortages mentioned above, a creature of government manipulation of the economy. Until it stops, Venezolanos will have to use sheets of the still-plentiful state-controlled propaganda newspapers to do what is necessary, and we regret that, but the lack of sanitation is rather self-inflicted in the Bolivarian Republic.

The ammunition shortage in the USA is, likewise, a product of the intersection of governmental and public will. A great many Americans feel threatened by Government hostility to gun rights, and this has caused some of the nation’s 150 to 200 million gun owners to reset their expectations of what a normal stockpile is. This indirect role of government is not the same thing as blaming USG ammo buys for the crisis. (Just for proportion’s sake: the DHS “be prepared to supply” number of some 1.6 billion rounds over ten years is less than ten percent of one year’s manufacturing of ammo in the USA, forgetting imports for a bit. The DOD’s ammo purchases are declining. And the USG is not responsible for buying up all the .22 rimfire. They could save a pile of money if they did, actually, but DHS doesn’t even buy ball ammo; they do all their practice with JHP warshots).

So it isn’t the government making the ammo disappear — it’s the people. It isn’t just panic buying — it’s a permanent increase in the ammo stocking level of a great many American households..

We, personally, operated on this basis: a couple basic loads of warshots for primary weapons, plus 1000 rounds of training ammo in primary calibers, 500 in secondaries, and a couple 500-round bricks of .22LR, and we were good.

We bought training ammo regularly, and used the new purchases to rotate stock so we never had year-old stuff in storage.

Expecting the shortage, which originally was a result of panic buying, to resolve quickly, we ate up a lot of our 5.56mm and 9mm training ammo, when it wasn’t available on our proficiency schedule. As a result, we’re now working towards much higher levels of stockage — and adding to the demand-driven shortages and price hikes.

We’re like a just-in-time factory that’s suffered a supply interruption and whose managers now have to go back to the bad old days of keeping lots of expensive inventory in house. There’s a reason JIT swept through manufacturing like Genghis (hard G’s please, we’re not vain Yalies here) Khan’s courée through Asia. It’s a better way to do things: it saves money, plus floor space, and energy (which are in the business world fungible to money). It also greatly reduces waste if processes have to change, which they do more often today than ever before.

But that system only works in a supply environment that is, to use a term from Taleb, antifragile. In general, antifragility is a characteristic of market economies versus centrally-planned (or even unplanned, but centralized) ones. If you were in Moscow in 1983 and needed shoes, you’d better hope that GUM (an acronym for Main Universal Store[!]) had your size in stock. If you were in Moscow, Idaho that year, you had several choices, and you could get shod even if you had, like one writer here, 4E paddle feet).

And the ammo supply system is fairly antifragile. There are very many suppliers, and many manufacturers. There are a few bottlenecks in the system (lack of good substitutes for primary feedstocks like brass alloys, hyper-consolidation of the manufacture of centerfire primers, etc) but there’s none where there are fewer than four sources — the supply chain never narrows to one single processor wide, like it did for that poor Muscovite thirty years ago.

So what’s driving the train is increased purchasing. We knew that, but we expected it to abate. It has not. The big sporting goods stores haven’t been able to keep popular calibers, including 5.56, 7.62 and 9mm, in stock. (The only defensive or modern sporting ammo in the local Walmart is 6.8 SPC, a round SF guys developed specifically for CQB, that’s very specialized and not widely chambered). Reloading supplies, particularly primers, are scarce (the four manufacturers of primers are selling almost every one to ammo manufacturers). We can understand the difficulty in sourcing 5.56, etc., but what’s mystified us is .22 shortages, which continue despite soaring prices.

The .22 Long Rifle cartridge is suitable for plinking, hunting small game, and especially for training and practice. While it’s fun to shoot larger calibers, you can do all the work you need on fundamentals with the .22. Many disaster survival experts suggest that .22 ammo is the currency of TEOTWAWKI (The End Of The World As We Know It), or situations WROL (Without Rule Of Law, a term that’ catching on because of its accuracy, and shorter acronym). We might not go that far, but we will say that owning bricks of .22 is less likely to end in tears than Bitcoins.

The cartridges are extremely cheap to manufacture, and along with their many domestic manufacturers, are made worldwide; they can be economically imported from many nations, some of which specialize in precision manufacture and some of which specialize in lowest costs.

And yet we’re out of them, and when a brick does surface it’s at a panic-buying price.

So what is going to happen? What can we do? First, none of us can make ammo appear out of thin air. Our choices are two: buy this expensive .22 or wait.

One law in economics is that if something cannot go on indefinitely, it will not. This can be applied to the ammo shortage. The market will equilibrate. It always does (even as a black market, if the market is suppressed. That Moscow shoe-buyer would have been in good shape if he knew somebody, which is how command economies work, always and everywhere. You don’t think Venezuelan regime insiders are wiping their nether ends with propaganda circulars, do you?) But, like gasoline after 1979, the market may equilibrate at a higher price than before. Before it equilibrates, there will be all kinds of mischief, profiteering spikes and so forth.

So our recommendation to you is: do not buy ammo you do not need. (You define your own need. We know a guy who’s planting caches for When They Come™. He needs more than we do). If you do buy stockpile ammo, you have to accept that today’s price may be more than tomorrow’s. Don’t think of ammo as an investment. If you buy it as an “investment,” you’re (1) speculating and (2) buying into the speculator market at what is, at the moment, a historic high. It may be a better store of value than cash, particularly if the Goldman Sachs brigade in DC keeps tickling the tail of the tiger of inflation, but it could also regress to the 20-year mean of price in a couple of months.

We do see higher prices as something that will continue because higher demand will continue. A percentage of the new shooters and gun owners who have joined our ranks this year will continue shooting, and they will infect more current non-shooters with the bug of sport shooting and preparation for self- and family-defense. I see changing demographics at the ranges — younger, less male, less white. I see thousands of young, respected veterans normalizing guns throughout their communities. These things mean that demand in 2018 will be substantially higher than it is now, in the crisis year of 2013.

On the other hand, the profits to be made are drawing new ammunition manufacturers into the field. The established players will have the advantage if and when the panic ends: these new guys will have to specialize or get creamed by outfits like ATK with unimaginable economies of scale. But a price war among ammo makers always has one winner, shooters. That price war is inevitable, but years ahead.

So what do we recommend: at this point, buy only what you need for regular practice, and what you need to have a comfortable war/flood/riot/locusts stock. Don’t overdo it, but do buy what you need. And do shoot some of what you buy… you can’t generate proficiency on demand when you need it, it has to be ready and waiting in reserve for you to call upon it.