Tuesday, June 1, 2010

Ammo Supply 101, Supply and Demand


EXTRA: Above normal product demand, usually for something intended to be stockpiled for that proverbial rainy day.

... Similarly, in the early nineties, some government thug wondered if it would be possible to manufacture ammunition with a limited shelf life. They asked someone in the industry to consider that possibility. Even though doing so was impossible, a rumor spread that shelf-life-limited primers were coming. Shooters and handloaders wanting to stockpile EXTRA supplies created a shortage.

DBI Books asked me to investigate that shortage. I spoke with representatives of every free-world primer manufacturer. Those conversations were most enlightening. Many of those revelations are basic to understanding the current shortages of ammunition, components, and related items.

One of those conversations revealed a fact that will surprise many readers: One of the largest primer producers in the US told me in confidence that his company was making less quarterly profit on primers during the primer shortage than it had made before the panic-driven shortage began.

While it had stepped up production to the extent feasible, its production costs had increased so much that both profit margin and absolute profit had decreased. This really surprised me because retail primer prices had doubled.

Last fall, the obamination occurred. This event created a panic-driven run on guns and all related items. Unlike the previous panic-driven runs, this run is not based upon rumor or perceived threat; every real American should intuitively understand that this threat is very much, very real.

If you do not believe this, you are part of the problem — one of those who would sacrifice freedom for the illusion of a little temporary safety and, as Benjamin Franklin noted so acutely, you deserve neither.

When will this shortage end? In 2007, short of a total economic catastrophe, few would have considered selling a family heirloom; in 2009, many viewed that family heirloom as a source of money with which they could buy something perceived as being far more important (e.g., primers, ammunition, etc.).

When will this panic driven shortage end? Not until panicked people run out of money.

Why does demand-side panic lead to such an obvious and startling shortage of guns, ammunition, handloading components, and handloading tools and why does it increase costs? The answer falls directly from analysis of free-market supply and demand.

Here is the critical fact: Before the obamination, no related manufacturer had the facilities to increase production more than about 40%. Moreover, even if a company did have such capacity, it could not expect to be able to affordably obtain raw materials needed to do so — companies that supply raw materials cannot increase capacity more than about 40%!

Moreover, spending money to add facilities in order to increase production beyond 40% — in response to a special situation that could end any time (one way or another) — is economically foolish. It would not work unless the entire supply chain could support that increase, which is far from certain.

For example, a primer manufacturer ideally runs two production shifts at eight hours per day, five days per week. The remaining time would be used to clean, maintain, and repair equipment, and to do associated work necessary to maintain production throughput.

This situation holds true for all related manufacturers, and applies to manufacturers providing raw materials as well. No glaring supply-side exceptions or variations exist, but variations in degree of EXTRA demand do exist (shortages vary accordingly).

Because practically no stockpile ever exists and because the supply pipeline contains so little of anything, just a few percent EXTRA demand results in an immediate supply-side shortage — exactly what happened three decades ago with the toilet-paper fiasco. If EXTRA demand increases more than about 40%, supply-side shortage will continue indefinitely.

Annual production worldwide for centerfire metallic-cartridge primers is about ten billion. In the US, about five million people have handloading equipment. If each of those persons decides to buy a mere 2000 EXTRA primers “just in case,” EXTRA demand instantly equals worldwide annual production.

Ammunition manufacturers will not stop making ammunition just to coddle handloaders. Therefore, eight of the ten billion primers produced each year will never be available to handloaders. This leaves two billion primers to fill the standing annual demand, which leaves a supply-side shortage of ten billion EXTRA primers.

If manufacturers can increase annual production by 40% up to fourteen billion, then they can produce about four billion of the needed ten billion EXTRA primers. All things being equal, demand-side need for EXTRA primers would disappear in about 2½ years.

However, nothing else is ever equal. Two issues prevent this result. First, demand for EXTRA ammunition exceeds demand for EXTRA primers by twenty times because twenty times as many people in the US own guns as handload ammunition. So, of the four billion EXTRA primers produced each year, not one will become available as a component primer. As a matter of fact, primer manufacturers have twenty times as many customers wanting EXTRA ammunition as customers wanting EXTRA primers. Therefore, as a matter of maximizing goodwill among customers, manufacturers have a twenty-to-one incentive to use all EXTRA primers to produce EXTRA ammunition.

Similarly, if we look at this situation strictly from an economic standpoint: Because the manufacturer can make more profit from ammunition than from primers, any primer it could use to produce ammunition but instead offers as a component represents a money losing goodwill measure.

Keep in mind that a manufacturer is constrained in production of other components, so it might not be able to use all primers in ammunition. However, if it can do so, using all primers to make ammunition is the most profitable approach. This is not a conspiracy; this is a natural consequence of free market economics.

Even if every one of the four billion EXTRA primers produced were offered as a handloading component, it would not matter because most handloaders are not interested in 2000 EXTRA primers — we want 20,000 EXTRA primers. (Really, we do.) And if we had 20,000 EXTRA primers, we would want more.

So when will the EXTRA demand be met so that primer availability will return to normal? My belief is that until the motivation behind the demand for EXTRA primers ends, the answer is likely NEVER.

Consider economics: $10,000 invested in the Stock Market in mid-2008 is now worth maybe $5000; $10,000 cashed out before the obamination and invested in guns, ammunition, and related products is now worth about $30,000. Many have made such an investment for lack of anything nearly as good.

Cost of production has increased but that is not why primer and ammunition prices have increased so markedly since the obamination. Many manufacturers and customers in the chain are engaging in free-market profiteering. Just last month, for example, a friend of mine sold 10,000 primers for eleven cents apiece!

For the foreseeable future, we will continue to face difficult times when it comes to simply continuing to enjoy the freedom to pursue our hobbies.

Similarly, any shortage of any particular component or type of cartridge requires no conspiracy. During a demand-side run, manufacturers that are selling every cartridge they can make of any given type have a significant negative incentive to shut down production long enough to gear up to make some other type of cartridge. Doing so can cost more than $25,000 in lost profits. The best economic approach is to gear up to manufacture the most profitable cartridge types and to continue to produce those until either:
• The market is saturated (which will never happen under present demand), or

• Something breaks and requires retooling.
If you were running Remington’s centerfire metallic ammunition factories, and if standing orders for 9mm Luger and 5.56mm NATO (223 Remington) rounds exceeded production capacity, what ammunition types would you produce? So, the next time you cannot find a box of 380 ACP, remember the law of supply and demand. Conspiracies need not apply.

Whose fault was the first primer shortage? A foolish rumormonger.

Whose fault was the gun and magazine shortage? Politicians and those who voted for them.

Whose fault is the current shortage? We–the–People — for continuing to support those who conspire to take our freedom. We–the–People got exactly what we wanted, and We–the–People got exactly what we deserve.

Never forget that any vote for the lesser of two evils is also an explicit endorsement of evil — consider how Jesus would view such behavior.

Mic McPherson is author of the best selling gunsmithing manual “Accurizing the Factory Rifle”, an avid shooter and instructor, and regular firearms writer. He lives in Southwestern Colorado.

The Korean Crisis - Cui Bono?


By F. William Engdahl
Author, Full Spectrum Dominance:
Totalitarian Democracy in the New World Order

The alleged North Korean sinking of a South Korean boat in March has dramatically escalated tensions between north and south Korea. It has also caused a reversal of a planned Japanese government push to close the US military base on Okinawa. The major question in the bizarre affair is Cui Bono?

On March 26, a 1,200-ton Cheonan corvette was sunk apparently by a torpedo. Forty-six sailors died when the ship went down near the disputed Northern Limit Line (NLL) in the Yellow Sea following a sudden explosion. On May 26, a special investigative commission of South Korean military and unnamed experts from the US, Canada, Britain, and Sweden, issued their report stating that, "Cheonan was sunk as the result of an external underwater explosion caused by a torpedo made in North Korea. The evidence points overwhelmingly to the conclusion that the torpedo was fired by a North Korean submarine."

That report has detonated an explosive rise in tensions in the entire Korean Peninsula and byyond to Japan. It has involved the Chinese and Russians in efforts at defusing the crisis. It also comes at an extremely convenient moment for the Pentagon. North Korea vehemently denies that it fired the torpedo and has accused Washington of provoking the clash. North Korea, angered by the accusations, has declared it is cutting all ties with Seoul and allegedly has ordered its 1.2- million armed forces to get ready for combat.

The United States and South Korea will hold joint military drills to practice interception of submarines "in the near future," a Pentagon spokesman has stated, calling the maneuvers "a result of the findings of this recent incident." The Obama Administration has said Pyongyang should face consequences and expressed its "unequivocal" support to South Korea. Obama has directed his military commanders to coordinate with South Korea to "ensure readiness" and "deter future aggression."

Curious proof

The key piece of evidence cited by the anonymous commission is a fragment of a torpedo propeller ­ somehow recovered at the final phase of the investigation - with a marking which reads "No. 1" and matches a North Korean torpedo found 7 years ago in the Yellow Sea, according to Alexander Vorontsov, Head of Korea Department of the Institute for Oriental studies of the Russian Academy of Science. He adds, "Considering that the blast was allegedly caused by a torpedo carrying a net explosive weight of 250 kg, investigators must have been remarkably lucky to find the right fragment with the marking implicating North Korea. The marking, which is the sole indication of the country of origin of the torpedo, could of course look exactly the same on a South Korean torpedo."

The Obama White House has rushed to endorse the Commission report. The White House condemned "the act of aggression" in a statement made available almost immediately on release of the report. Even before the report was released, Obama talked to South Korean President Lee Myung-bak by phone and reportedly told Lee that all contacts with North Korea should be suspended until it becomes clear who perpetrated the attack, not exactly a calming move.

Japan, whose new Government had won election on a pledge to close the controversial US Naval base on Okinawa, suddenly capitulated and agreed with Washington to "settle" the dispute, citing the Korean crisis as grounds. Japan and the United States have now come to an agreement on the relocation of theUS military base in Okinawa. Japanese Defense Minister Toshimi Kitazawa and US Defense Secretary Robert Gates met at the Pentagon the same day the Korean commission issued its "findings."

To date both the Russian and Chinese governments have reacted extremely cautiously to the Seoul claims. Russian foreign minister Lavrov has stated that Moscow would carefully review pertinent materials, both those from South Korea and "from other sources." He made clear that Moscow had reservations about the South Korean version of the incident and deemed further verification necessary. Lavrov also urged restraint on both sides, a stark contrast to the Obama Administration.

China's position is generally similar. China's foreign ministry spokesman described the sinking of Cheonan as a tragic incident and stated that the priority in dealing with it should be to sustain peace and stability on the Korean Peninsula and in the entire North East Asia. Beijing is calling for calm and restraint until it transpires what exactly happened. Unofficially, China criticizes the evidence at South Korea's disposal as unconvincing, patchy, and contradictory and says it is going to assess the situation independently.

North Korea insists that the evidence was forged and is ready to send its inspectors to assess it. Pyongyang is offering to delegate representatives to review South Korea's "evidence," a timely and rational initiative intended to keep the inter-Korean dialog afloat during the crisis and help defuse the conflict. South Korea's refusal to enter talks with Pyongyang would further diminish the credibility of their evidence.

In addition to the dispute over the status of the key US base on Okinawa in Japan, the US is under pressure to end its military command in South Korea and turn it over to the South Koreans in 2012. The US has 28,000 troops on the peninsula. In line with an agreement reached after the end of the 1950s Korean war, South Korean soldiers follow US military orders in case of war on the Korean Peninsula. The latest incident comes as North Korea appeared ready to resume the six-party talks on North Korea's nuclear program, involving Russia, Japan, China, the United States and the two Koreas, stalled in April 2009 when Pyongyang pulled out of the negotiations in protest against the United Nations' condemnation of its missile tests.

In 1999 this writer spoke with a former US Ambassador to Beijing, a career CIA officer and close friend of the Bush family. The former diplomat stated, in an incautious moment, "If North Korea did not exist, we would have to create it. They allow us to keep our fleet in the Japanese waters despite the end of the Cold War." Perhaps the sudden heating up of Korea tensions is also related to a longer-term Pentagon agenda for the region. If we ask Cui Bono, the clear reply is Washington.

Alexander Vorontsov, The Conundrum of the South Korean Corvette, RIA Novosti, Moscow, May 26, 2010.