It has been a while since I’ve given an ammo update, because, well there hasn’t been anything unusual that needed to be shared. It is like the dash on your car, if everything is in the green and good to go, you don’t need a blinky light telling you to check something. Well, now we do.
Over the past couple of weeks we’ve seen some newsworthy events that have impacted the ammunition market - so it is time for an update. This will be a little long but as Maude from the Big Lebowski puts it, it'll be "thorough".
There is (I would guess) a saying in the stock market, that you only know a market bottom after it has passed. I feel like that is what we’re going to say about the 2023 ammunition market. The bottom, at least for this cycle, is now in the past.
I'm sure those in the industry will agree, June was an especially tough month for ammunition sellers. Sales were down and margins were slim. It was a great time to be a buyer though, regardless of whether you were buying a couple boxes, a case, a pallet, or a full truck. Ammo sellers were offering deals left and right. But as we all know, the party can't go on forever…
I'd like to give a special thanks to the violence in the Middle East for those deals disappearing. When Hamas attacked the Gaza Strip on October 7th, it didn’t seem like anything unusual for most of us (at least not the cats I run with). Just more Middle East violence. That weekend, I was at a 4 Day Precision Rifle Course in Utah put on by MDS and nobody even mentioned it.
Like a stone dropped in a pond, we quickly saw ripple effects.
Two things happened after that attack, first there were calls for the US to be involved, or at the very least provide support (e.g. ammunition) to Israel. This is in addition to the munitions we provide Ukraine so more outgoing ammo would inevitably take away from the civilian ammunition capacity.
The second thing, which really put the dominoes in motion, is that people started to panic buy. I’m not sure if they were panic buying because they thought there could be an attack on US soil (like a “Jihadist Friday” which I mentioned last week) OR they were trying to get ahead of prices going up with the additional strain on the system from two wars to support and us potentially getting involved.
The end result is that prices of CERTAIN calibers have gone up about 25% since the attack. We’re seeing it PRIMARILY in 5.56 NATO (and 223 Remington). Especially M855 “Green Tip” but really, any form of 223 / 556 FMJ round has seen a price increase due to increased demand. (There is an additional reason people started panic buying 5.56, which really pisses me off - but I'll get into that in detail under the "Rumors" section below.)
Right now on October 21st, 2023 if you check out a few of the online retail bellwethers: LuckGunner, Midway USA, SG Ammo, and TrueShot ammo; 5.56 Nato FMJ is going for between $0.55 and $0.65 per round.
I was a guest on For the Love of Guns Podcast this week and I mentioned something along these lines: guns and ammunition are a security blanket for Americans. When things get uncertain, they buy more guns and ammo. We’re just wired that way.
So that is partially what we're seeing here. It might continue or it might fizzle out.
From what we're seeing these price increases haven’t impacted other calibers in a significant way. That isn’t to say they won’t, but as of right now they are pretty limited to 5.56 Nato and 223 Remington.
Rumors and Facts - Winchester Lake City
There has been a rumor floating around that I feel is completely unsubstantiated and based on a bogus source I need to address here because it has been flung across the internet like a monkey throwing crap. The rumor is that supposedly Lake City (which is owned by the government and currently operated by Winchester) has canceled all commercial orders.
When you look deeper into this rumor and follow the source you'll find there is no official source stating this. There is instead a circle jerk of articles that started on one sketchy gun blog with no actual source even cited. I personally believe it was written to start a panic because the blog is barely a blog (they have a grand total of ELEVEN articles written over the past in 22 months - two of which are about Lake City closing or cancelling orders!).
The real problem is that bogus article got amplified by The Truth About Guns and the rumor took off like wildfire. I've seen it all over social media and in the gun community, but it is total BS.
I'll quote from the "article" here:
"This all means that as Lake City cancels contracts, you’ll stop seeing Winchester 5.56 on the shelf at your local gun store. Distributors won’t be able to purchase new shipments, so as they run out of their current stock, the shelves will slowly, or quickly, dry up."
Garbage like this is just designed to get people to panic buy 5.56 and that is so unbelievably unethical that it makes my blood boil! If anyone can present a reputable source I'll gladly eat crow, but as of right now this appears to be a lie designed to add fuel to the fire of panic buying.
How can I be so certain? Unlike a lot of internet talking heads and questionable "blogs" we DO have a direct relationship with Winchester and we DO have commercial orders for 5.56 Nato from Lake City outstanding that weren’t canceled. Um, doesn't that "article" say ALL commercial orders with Winchester / Lake City for 5.56 were canceled?
Now I can confirm, also by talking with our Winchester rep, that the only definitive action Winchester has taken so far is remove the promotions they had on their ammo. Again I can say this from first hand experience because our cost on new orders of Winchester Lake City 5.56 increased 25% last week.
Hornady Primer Plant Explosion
We also know last week that Hornady had an explosion in their primer plant and one person was killed and two others injured. The conspiracy theorists among us will say this is deliberate and the timing is suspicious. I don't disagree with that at all. But these types of explosions do happen occasionally which is why the part of a factory that makes primers is separated from the rest of production. I'm not sure what kind of effect this will have on Hornady, but the sense I get is that it will be minor and won't have a noticeable impact on the market. Like all ammo manufacturers, they have an incentive to get things back up and running as quickly as possible.
Will prices continue to increase? Will there be a shortage?
Honestly, my crystal ball is broken so I have no idea. It will really depend on how involved we get in these regional conflicts and how much panic buying there is in the US.
Thinking about it logically, I can say this, I don’t think we are looking at a COVID style across the board shortage. The reason I believe that is that we don’t have the global shutdowns we had to deal with in 2020. Ammo manufacturers are going to be cranking out ammo like they always do and don't have to worry about stupid "6 feet" separation and "sanitation" rules.
Plus, just like any good capitalist system, if there is money to be made more suppliers will enter the market. Which is exactly what we've seen since 2020. Just off the top of my head I can thing of a half dozen new brands that didn't exist prior to 2020. Add to that the fact that there is more manufacturing capacity now than in 2020 and it is growing every month. Recently SIG announced they were investing $150 million to expand ammunition production in Arkansas. This also has to do with the contracts they received from the US Government, but more capacity is more capacity.
Like any market, there is a natural interaction between supply and demand using price discovery. The higher the price, the less the demand and the more the supply. It tends to bring things back into equilibrium eventually. Right now there is demand pressure on 5.56 and 223 from multiple angles so the price is going up. But at the same time there is still plenty of supply. We have multi-pallet open orders right now with Fiocchi, Winchester, and PMC for 5.56/ 223. They are all happy to take our money and supply us with ammo - unlike during COVID timeframe when there just wasn't ammo available to buy.
How does this impact AmmoSquared?
With some online retailers running low on 5.56 NATO and raising prices, you might be wondering how we're impacted in this situation. Right now, very minimally. We have raised our price on our 5.56 Only SKU to $0.60 per round, our combined/mixed SKU to $0.55 and our 223 Remington only SKU to $0.53 per round. We will continue to follow the market up if it continues in that direction or back down if/when that happens.
We made it through the ammo shortage years with our allocation system. It works and is fair for everyone. In a nutshell, we don’t allocate ammo into your inventory until we have it available. This prevents us from OVER ALLOCATING and then getting in a bind down the road if ammo becomes unavailable. As of right now we’re being extra cautious on 223 / 5.56 so that means our allocations will take a little longer as we line up shipments and get more in.
The other benefit of an allocation system is that it helps to discourage the people that want to use us like regular ecommerce. As inventory gets low from the big online retailers we start to see people sign up that want a large "one and done" order from us. That just isn't our business model and we try to discourage that as much as possible. Customers who understand our model are okay waiting a few weeks before seeing the ammo in their inventory. People that want it shipped the next day aren't.
So that was a little bit long, but hopefully a very detailed analysis of what is happening to the ammo market right now and how we're responding to it. Next week I'll publish some strategies you can use to ride this wave to your benefit.