A Bullet Bubble?

The Bullet Bubble: Is Ammo The Next Bitcoin, Or Gold In The 1970s? Excerpt:

Try going to your neighborhood Wal-Mart to buy some .22 bullets for target shooting, or a couple of boxes of shotgun shells, and you’ll discover what hunters and gun enthusiasts have been muttering about for months now: The shelves are bare. Manufacturers are operating flat-out but can’t keep up with demand, as consumers snap up every box of ammo as soon as it comes on the market. Wal-Mart limits buyers to three boxes when they’re available, and Cabela‘s is limiting online orders to one box per day of the popular .22 long shells increasingly used as cheap ammo for target rifles and pistols.

... It’s difficult to get precise numbers on how many bullets are sold in the consumer market in the U.S. each year. The Treasury’s Alcohol and Tobacco Tax and Trade Bureau (split off from the ATF a decade ago, not that anyone noticed) collects an 11% tax on ammo sales by manufacturers. That tax serves as a rough proxy for demand, and government statistics show receipts soared from $68 million in 2000 to $129 million in 2008 and $172 million in calendar 2009, President Obama’s first full year in office. That would imply wholesale bullet sales of about $1.6 billion, or possibly retail sales of $3 billion. Consumer retail purchases of clothing and footwear last year, by comparison, were about $327 billion according to the Bureau of Economic Analysis.

... I called a few ammo manufacturers to get their views on future supply and demand, but they’re press-shy in the wake of the Newtown shooting tragedy. Olin Corp. is one of the biggest U.S. manufacturers of civilian ammunition, generating about a third of its revenue from bullets. Olin’s Winchester division is in the midst of a $110 million upgrade of its ammunition business, in which it is centralizing its operations in Oxford, Miss. Once the upgrade is done, Olin says in its most recent 10-K, it will reduce Winchester’s annual operating costs by $30 million. “Winchester expects to have the most modern centerfire ammunition production facility in North America,” the company says. Ammunition has been a good business for Olin lately, with total sales rising 8% to $618 million and profits climbing 46% to $55 million. The company’s commercial backlog, most of it for civilian ammunition, has also soared from $38 million at the beginning of 2012 to $311 million as of Jan. 31. The company’s shares are up 25% this year. Federal Premium answers its own question, “why can’t you just make more ammunition?” by saying it is already running its plants 24 hours a day. The company also says “there is some indication now that the shortages may be easing, aided in part by retailers’ decisions to limit sales to each customer.” Parent ATK, which has a large defense business, is up 17% this year.

Comment: Perhaps one should invest in ATK?