Rising Cost of Ammunition

News & Current Events Current Events
21

… and “Nail on the head? And there you have it?” Demand being currently much higher than supply?; Partly due to new federal level office holder, thus demand holds strong?

Interesting point someone upstairs made about why toilet paper (TP) did not also quadruple in price when Pandemonium-19 first struck in 2020. More people want and need TP than ammo, including children, the disabled, seniors, the poor, and disadvantaged. I did notice a brief and slight increase in TP’s price, and we all remember it not being on the shelves (similarly with ammo), but TP came back relatively soon. As goofy as it sounds, might comparing the two commodities help us understand the “why’s”?

Recently, of four local haircut shops near me, three closed down, the one which remained opened doubled their price. Economics is complex. Wow.

Mid-November 2020 news:

22

image

23

The On line stores like " Cheaper then Dirt " are in the market to buy HIGH and resell HIGHER - the fact is they’re getting the commodity as the sporting good stores are still selling at lower ( not Discounted prices but normal ) But are not getting very much supplies . I walked into a Cabela’s sporting goods store a few weeks ago - they use to have three rows of shelves double sided & stacked five shelves high - They had NO hand gun & Little rifle ammo VERY Little .
Shotgun ammo was limited to a few VERY few boxes of 20 gauge & that was light bird shot - NOT ONE SINGLE BOX of
any kind of 12 Gauge . NOTHING ! Hardly any gun cleaning supplies shelves were bare .
Tried on line and found some ammo for 9 mm range ammo selling at $37-to $40 a box of 50 others wanted $60 -these went for $10-$12 Oct - Dec 2020 Hollow points selling @ $22 ACP 45 cal pre covid was $18 - $22 fora box of 25 _ NOW PRICE ( if you can find defense bullets ) over $50 for a box of 25 & most are not brass jacket , some are bagged reloads _ . Yeah I’ll shoot virtually with i Target simulator .

24

There is no doubt that Ammo Munitions Inc. (POWW), Olin Corporation (OLN) and Vista Outdoors (VSTO) want to improve their net income. They want to turn what has been a negative net earnings into positive net earnings. Covid and the spike in guns sales were the elements needed to raise the price of ammunition. The increase reflects where the companies feel the product needs to be priced to make a profit.

Like a lot of other things there are two sides. These are the company and the consumer, and they are in direct contrast to each other. Consumers do not want to pay higher costs. Companies can not exist on loses. In short, the three corporations had three knobs to turn to improve profit. One is lowering the commodity prices of the goods they use in their products. We all know that is not going to happen. Another is to cut manufacturing costs. I would assume after several years of losses they would have trimmed as much as they could. The last one, which they directly control, is cost of goods sold.

With just three corporations controlling the bulk of ammunition sold in the US, all with negative net profit, it is easy to see that if one raises the price the other two will follow. So, starting in the first quarter of 2020 they had a reason to do so, it was called supply and demand. (By the way, I just checked, and I can buy all the ammo I want. So, is there really a shortage?)

As the price for ammunition increased, so did the value of their stock.

Stock price is based on speculation and performance. Investors will purchase stock when corporation’s earnings go up. Likewise, investors will sell when a corporation’s earnings go down. Investors did not see much improvement in the performance of the three corporations between 2017 to the beginning of 2020. So, there was little improvement in the price of stock. Not only were the stock prices down, but there were no earnings per share being paid.

Then the price of ammunition increased, and this caught the attention of the market. The speculation was that these corporations were going to begin to show positive net earnings. The performance was the actual increase in the cost of ammunition. It then made sense to buy stock because there would be a return on this investment.

So, where does that leave the consumer? Yep, you guessed it. We will be paying higher prices and like cup holder in cars we will begin to expect it to be normal. How can I make such a prediction? I looked at the 2021 estimate-of-earnings-per-share and it is up from the previous years. For example, Vista Outdoors earnings per share in 2020 was $0.24. Their estimated earnings per share for 2021 is $3.25.

At some point the cost of ammunition will settle at a new level and it will be higher. That is good news for stakeholders. It is bad news for gun owners.

By the way, I am not recommending buying any stock. It looks like it peaked mid-February and is coming down.

I am thinking about just shooting .22.

25

The dealers around me did not stocked the higher price ammunition, because they were waiting for the price to drop. They started stocking the higher prices about a week ago.

26

While it’s true that adding shifts defrays the initial purchase cost of equipment over a shorter period of time, there are in fact, additional costs beyond labor.

  • Maintenance cycles for equipment will be shortened, increasing overall cost of maintenance for any specific period of time. Not to mention, equipment may not be designed for 24x7 operation.
  • Likewise utility costs will rise. These may not be linear as utility companies may charge on a tiered basis – tier 2 may cost 1.2x tier 1, tier 3 may cost 1.5x, etc.
  • Economic Order Quantities will likely change based upon increased shipping&receiving needs, and available storage space for manufacturing supplies.
  • Manufacturing’s suppliers too may charge more as demand for their goods & services increase.
  • Lastly, a system scheduled to operate at 100% capacity is actually less efficient than a system operating at lower capacities; this is due primarily to effects of perturbations within the system that shock the supply chain in both directions. (A system working at lower capacity has more ability to absorb such perturbations.)
27

Maintenance is typically based on the number of pieces run through a machine. If a machine requires service every 10,000 parts the cost per piece is the same if I run 10,000 or 30,000.

Like maintenance, utility usage is based on the number of hours a plant produces parts. If it produces 10,000 parts in eight hours then it will use the same amount of utilities to produce the same number over three eight hour shifts. A lot of manufacturers have turned to peak shaving electrical demand to reduce this cost. Peak shaving is done during first and maybe second shift. Then there is the equipment that can not just be flipped off and on. furnaces that melt lead must stay hot, so they are probably under utilized with a single shift operation.

Storage space goes at a premium rate if it under the actual manufacturers roof. This space is better utilized in the production process. Manufacturers are utilizing rental storage to handle demand. First it is less expensive and second it can be adjusted based on demand.

If a supplier charges more, then it is time to find another supplier. The manufacturing of ammunition is the combination of basic commodities. Lets use copper, lead and brass. If one supplier wants to charge more, find a new one or add a second supplier. The manufacturer knows the market price for these commodities, and they typically have long term contracts defining the cost. If they accept anything else, then they will not be in business long.

I worked for a large manufacturer. I led projects to install equipment. The equipment was specified to perform at a given level - 100%. Production at anything less was unneeded capacity - equipment dollars spent unwisely. Proper maintenance will keep a machine running. If it does not, then either the machine can not perform as specified, maintenance was sloppy or the maintenance procedure need to be adjusted. Trust me someone’s head was coming off and the problem was corrected.

28

Maintenance is typically based on the number of pieces run through a machine. If a machine requires service every 10,000 parts the cost per piece is the same if I run 10,000 or 30,000.

Like maintenance, utility usage is based on the number of hours a plant produces parts. If it produces 10,000 parts in eight hours then it will use the same amount of utilities to produce the same number over three eight hour shifts. A lot of manufacturers have turned to peak shaving electrical demand to reduce this cost. Peak shaving is done during first and maybe second shift. Then there is the equipment that can not just be flipped off and on. furnaces that melt lead must stay hot, so they are probably under utilized with a single shift operation.

Storage space goes at a premium rate if it under the actual manufacturers roof. This space is better utilized in the production process. Manufacturers are utilizing rental storage to handle demand. First it is less expensive and second it can be adjusted based on demand.

If a supplier charges more, then it is time to find another supplier. The manufacturing of ammunition is the combination of basic commodities. Lets use copper, lead and brass. If one supplier wants to charge more, find a new one or add a second supplier. The manufacturer knows the market price for these commodities, and they typically have long term contracts defining the cost. If they accept anything else, then they will not be in business long.

I worked for a large manufacturer. I led projects to install equipment. The equipment was specified to perform at a given level - 100%. Production at anything less was unneeded capacity - equipment dollars spent unwisely. Proper maintenance will keep a machine running. If it does not, then either the machine can not perform as specified, maintenance was sloppy or the maintenance procedure need to be adjusted. Trust me someone’s head was coming off and the problem was corrected.

29

For efficiency’s sake, I’m not going to argue each point here. But you had originally contended:

And that’s simply not the case. Labor isn’t the only cost to increase production. (I’m not saying manufacturers cannot potentially be more efficient by adding shifts.)

Further, machines may be designed to run at 100%, but systems do not run well at 100% utilization. This is the very reason for buffers which are, by definition, idle spaces. Here’s an everyday example we can all identify with: When streaming media, if you aren’t buffering incoming data, perturbations in the bit rate of content delivered from the server to your client cause jerky playback.

In a manufacturing scenario, if the system is running at 100%, and a perturbation occurs, a machine part breaks, or a worker operating a station is injured, for example, a temporary bottleneck is introduced. Unless the system shuts down completely, upstream processes back up, downstream processes are starved, and final output measured against time goes down, hence cost goes up. With a lower system utilization rate, a station has time to recover without introducing those problems, or at least not as severely.

30

Y’all need to stop arguing over manufacturing and get back to work making us ammo.

2 Likes
31

Most correct statement in this sub-thread!

32

Here’s what I know. Federal has a program to sell ammo to youth shooting sports. We are getting Federal .22 Target High Velocity for 160 bucks for 3200 rounds. That’s a nickel a round. At a recent gun show, vendors were selling .22 ammo for 85 dollars for 500 rounds. That’s .17 cents per round. That tells me the vendors are jacking the prices.

2 Likes