Rising Cost of Ammunition

I am as shocked as anyone by the price of ammunition today and I have heard a dozen reasons why it is more expensive. Everything from COVID to demand verses supply, to material cost, to price gouging. But no one seems to agree on why the cost has significantly increased. As someone that shoots 200 to 400 rounds a week, I have had to cut back. Like everyone, I am waiting for the price to decrease back to near normal. However, curiosity had me dig into this.

First off is Covid. Yes Covid did impact the manufacturing of ammunition just like it did every other market. So, why are we not being charged 3 times as much for everything else?

There are those that point to demand verses supply. This may have set off the increase, but it is only the tip of the iceberg. I can find ammunition easier than toilet paper. The cost for toilet paper has not triplet, but ammunition has. Yet it is readily available if you want to pay the price. I doubt anyone reading this will argue that they cannot find ammunition online. Google ammunition sales and I will bet you dollar to donuts you can find the ammunition you are looking for, but at an increased cost.

So, are the commodity prices driving this price increase. Has the price of lead, copper, brass, charcoal, potassium nitrate and sulfur increased? Not really. I looked at a 5-year summary of each of these commodities and I just see normal trends in each of them. The hardest one to track was potassium nitrate, because it is not listed. I had to rely on the price of fertilizer for my analysis. My research did find that the cost of fertilizer has significantly increased since January 1st of this year. That will soon be reflect in the cost of groceries. I was not able to find a market index for charcoal, but I do buy it and it has not gone up by three times.

Basically, there was no surprise increase in any of these that reflected a significant price increase in 2020 when I looked at a 5-year history.

So, we are being price gouged. We must have it, so the manufacturers can ask any price they want, and we will still buy it. We may buy it in smaller quantities but spread that out over all of the new gun owners and the manufacturers can still sell what they produce.

Why has the price increased?

First off, the ammunition market is an oligopoly, which means it is a market shared by a small number of producers. In this case there are 3 primary corporations manufacturing ammunition. They are listed in the stock market as: VISTA, OLIN and POWW.

To simplify this discuss let us focus on a market with just two kids selling lemonade. The cost for making a glass of lemonade is $0.50 for each. Both offer the same quality. One sells for $0.60 a glass, and the other sells for $0.55 a glass. It would be a reasonable conclusion that you would rather pay $0.55. It would also be reasonable that the kid selling for $0.60 would have to lower his price or implore some magical marketing scheme. Magic is out, so he drops the price.

Now is where it gets difficult to understand but bear with me. Two kids are selling lemonade at $0.55 a glass, but the cost to make the lemonade increases to $0.60. Neither kid wants to increase their price for fear of losing the business so they keep their cost low hoping the other kid will lose interest and leave. If successful, the kid now owns the market. But what if the other kid has the same idea. Both are now selling at a loss hoping the other one leaves the business.

So, what does lemonade have to do with ammunition? There are three manufacturers. Each competing for our business. One wants to win. In doing so, they are willing to take a loss to drive the others out. But it is not happening. The other two have the same concept. Then along comes an increase in guns sales and a demand for ammunition. If just one increases their price the other two will follow because they cannot stay in business by selling at a loss. The reason for the price increase is an increase in demand.

To put some teeth into this discussion all three manufacturers have been operating at a loss for a few years now. You can check their past earnings by reviewing their stock portfolios. One of them flinched and raised their price. The other two followed and increased their price higher. Eventually we are now paying much more than we did for ammunition.

The bottom line is not about shooting. It is about maximizing the shareholders wealth. The stock in these 3 companies has gone up by a factor of three.

Will it stay this expensive? I think so unless commodity prices drop a lot. What if one manufacturer drops their price again? Well, the answer should be obvious. The other two would maintain their price and eventually the one that dropped their price would be out of business.

Stay focused on the estimated earnings per share for 2021 for each of these manufacturers. If they show a positive earning, then probably the price has stabilized. But if they are negative then expect the cost per round you put down range to increase.

I am off to buy some lumber now…

Only problem I see with your conclusion, is that I buy Ammo direct from a couple of Ammo manufacturers, and they have not really raised their price much at all, but they don’t have Ammo often as they say they must supply their distributors. However if I go to the distributors I find an increase in price and the increase in price varies greatly from place to place for the same Ammo.

This would lead me to believe that there has been some form of shortage, take your pick as to the reason, and that the price increase is due more to demand and efforts to gouge by resellers.

I dont necessarily agree with what you are saying, but for the sake of argument, lets accept your premise. I see what you are saying, but one cannot ignore the supply demand curve when it comes to the price of ammo. I understand what you are saying with producing at a loss, and I actually own or have owned many of the stocks you listed. Truth be told, I sold most at a large gain right before the election. Could I have made more? Sure, but I was satisfied with 128% gains. But that is beside the point. You cant look at the market in terms of the last year. The ammunition supply is very cyclical. By that, I mean this is not the first shortage, and it wont be the last. Every election cycle spurs some extra buying along with certain events that become politicized. Factor that with all the new gun buyers and you have a lot more people competing for the limited supply of ammo. Why do I say supply is limited? Because historically, the shortages, while cyclical, are temporary. It does not make sense from a business perspective to invest in a lot of new people and equipment every couple years just to have to mothball lines and lay off employees. If you need any further proof of the cyclical nature, what is going on with ammo during the lull halfway into a firearms friendly administration? The price of popular cartridges’ such as 9mm are so cheap that you cant reload it cheaper. Mail order sellers offer deals such as no hazmat fees. Financials are one thing, but you have to dig into them to really understand them and not just look at net income. If a company was truly losing money, their stock price would drop to the point they would get de-listed. In fact, if you look at their historical financials, they all have years during the Trump admin (pre-pandemic, firearm friendly admin) where they had positive net income.

I guess that is a long-winded way of me saying that I think the price of ammo now is mostly market-driven. As you point out, ammo is available out there. And if you look at the price over time, you will see that it is going down, and it will continue to go down.

One flaw that I see in your logic - there are millions of new gun owners in 2020 - all needing ammo, and many current gun owners who bought additional guns in a different caliber (like me) who may have had hundreds of rounds of, say, 9mm, who now need .38 Special.

There are not millions of new toilet paper users in the last year.

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I look at it from the manufacturers standpoint and Federal even discussed this not too long ago. Because the demand has increased exponentially, they have added additional shifts which means they’ve added employees. Labor is always the biggest expense for a company, so I’m sure some of that added expense is getting passed onto the buyer. Now when you buy from large stores like Bass Pro Shops and Sportsmans Warehouse, it doesn’t seem like the sale price is much worse than it was previously. For instance I bought 8 boxes of Federal 62-grain .223 FMJ for $12.99 / box recently. I think most of the major stores are trying to keep the prices reasonable. Where I see the cost increase is really in the online stores. I’m not sure why, maybe they don’t do enough volume to elicit better pricing from the wholesaler? Or maybe in some cases they are inflating prices.

Yes I would fully expect earnings of anything firearm related to be up significantly year on year, but that’s just normal with an increase in demand especially to the degree that we’ve seen. I don’t think it’s related to anything negative on the part of the manufacturers. Now what happens between wholesalers, the retailers, and the customer… who knows.

My study was over a 5-year period. OLIN showed negative net income in 2019 and 2020. VSTO showed negative net income for 2017, 2018, 2019 and 2020. And POWW showed negative net income in 2016, 2017, 2019 and 2020. There was no report for POWW in 2108. Basically, the net income dropped before COVID and the 2020 spike in gun sales. Gun sales did spike in 2017 but dropped off to near normal levels during 2018 and 2019.

Why did the net income drop before COVID or the 2020 spike in gun sales?

If I am a manufacturer operating only one shift, then my equipment is idle for two shifts. The only cost to increase production is the labor cost. Assume a pay of $20 an hour for 1st shift and $22 for the other shifts, then it is costing $2 more an hour in production. This only explains a slight increase in costs assuming mass production.

I don’t know what Federal, Hornady, or other OEM’s labor looks like so let’s just use a hypothetical situation. Prior to the increase in shifts let’s say company A ran a day shift of 10 FTE’s at $20 / hour for 40 hours a week. That’s approximately $416K / year and if they offer medical benefits then the actual labor cost is probably between $500K and $540K depending on the plan and how much the company subsidizes. Now to accommodate demand company A adds a swing shift and a graveyard shift and adds 5 FTE’s to each shift, so 10 total. Now their labor expense is somewhere between $600K and $650K, again depending on their plan and how much they subsidize. That’s approximately a 20% increase in labor expense. I would fully expect company A to cover some of that expense by increasing the cost of their product. For example, if company A previously sold a 20-round box of ammo for $11.99 / box and increased the cost of their ammo by just 10% to cover some of the incremental expense then it would be $13.20 / box. Now the wholesalers need to keep their margin and they’re going to increase the cost they sell to retailers. Retailers have employees to pay and need to churn a profit, so they’re going to increase their cost to cover the increased price they pay to wholesalers.

I’m not sure who OLIN or VSTO represents.


First thanks for bringing forward and elegant and professionally written discussion point. I on most of your writings agree with your documentation and examples. One area, that is I feel an area that needs to be address is the root cause of the increase in not only ammo but in arms. I wish I had purchased four or five 9mm Glocks a year ago, that is profit.

I believe this opens the discussion regarding politics & policy. It is my intent not to turn this into a discussion regarding political administrations, yet it cannot be ignored. The National Review in August of 2020 published an article that according to FBI documents, there were an additional and brand new 5-million-gun owners in the US. That increase was a 70% increase over the same period in 2019, I emphasize the article was in August of 2020. I do not have documentation regarding the entire year.

Enter the Father of Economics, Adam Smith and I quote him “The first lesson of economics is scarcity: There is never enough of anything to those that want it. The first lesson of politics is to disregard the first lesson of economics”. Supply and demand. Demand skyrockets, supply plummets, and price goes up. Ammo manufacturers (referring to your lemonade example), I believe were caught flat footed, had to ramp up production for an ever-increasing demand, and because of labor…we all experience price gouging.

It is my belief, and where is where the political manta enters, this country as a whole, was on edge, and to some extent it still is, and people that have never put a pistol in their hand or stock on their shoulder were rushing out because they were afraid of what might happen or they were told what could happen by the media, and in some instances it did, I cite Patricia McCloskey of St. Louis, who if you have seen the video, you can clearly see, she has no idea what to do with a gun in the first place. This is a perfect example of public fear.

Thank you for an excellent discussion point, I look for more like this in the future.

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You are pointing out the fallacy of looking just at net income. You are asking to explain the drop in net income prior to the COVID or 2020 spike in gun sales, when in just the paragraph before, you were pointing out that they lost money in 2020, or asking how they could still be in business when loosing that much money year after year, or why their stock is worth anything at all or how they have any capacity to borrow money from the bank?

One of my surprises was the fact that these three corporations manufacture most of the name brands we buy. They include Winchester, Hornaday, Federal, Blazer Brass, CCI to mention a few.

I am with you on first time gun owners. I have seen them at the range and they have no concept of how a gun functions let alone gun safety.

I was surprised as well. Aside from Federal and American Eagle, Federal also makes Speer Gold Dot, Blazer, and Remington. I remember seeing not too long ago that Remington was in trouble financially, which seemed crazy to me but I’m wondering if Federal bought them.

Totally understand the concept of inflation, and a few cents on gas prices, but highway robbery and price gouging is another story. Do I call my governor? In most states during a “state of emergency” price gouging is illegal!
I was just alerted to the availability of 1000 round cases of ammo (which is how I purchase) from February 29, 2020 the same case, same manufacturer, that was $354.00, today it’s $899. There’s no way I’m paying that much.
I’ll just have to aim better! Talk about having every round count, for some, a week at the range is a weekly salary!

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Definitely don’t call a politicritter and complain. All that will do will be like, oh yeah, maybe we should shutdown that business or work on more gun control crap.

Federal, CCI, Speer and Remington are all subsidiaries of Vista Outdoors (VSTO). Heck they even own Hoppes, Weavers, Outers, and Bushnell just to name a few more.

Oh wow, I was wondering about the VSTO reference. The diversity by having Hoppes, Weavers, and Bushnell is good. I wonder why own and operate the three 4 ammo manufacturers and operate them under four brands. Federal’s and Speer’s ammunition especially their hollow-points seem to be very direct competitors of each other. It’s almost like owning both Burger King and McDonalds it seems.

Not only am I not calling anyone, I’m not buying at those prices. Tripled in a year? There’s absolutely no reason for a price increase that high, double I can live with, but triple is just BS.
Feel sorta bad for new gun owners, but I guess that’s the price they now pay for not understanding our way of life and the belief in the 2A.
I for one stocked up last year!
They will pay through the nose to reach the competency that I’ve reached over the years. It now seems clear that ammunition manufacturers are going after the money of the NEW gun owners!

They buy the trade name as well as the manufacturing facilities.

Hornady is in Grand Island, Nebraska about an hour and a half by car from me.