Late on Friday, June 25, the cattle industry was presented with the situation many had fretted about in regard to the expanded surveillance program for bovine spongiform encephalopathy (BSE) that USDA initiated on June 1. Of primary concern was the effect on market psychology should an inconclusive test be discovered. Although further testing using the "gold standard" immunohistochemistry (IHC) test showed the animal did not have BSE, it appears the industry will have to find a way to absorb and digest more announcements of inconclusive BSE tests.

In fact, as this issue of BEEF Cow-Calf Weekly went to press, the industry was awaiting confirmatory IHC testing on a second suspected BSE case.

"Inconclusive tests are a normal component of most screening tests, which are designed to be extremely sensitive," says John Clifford, DVM and deputy administrator for Animal and Plant Health Inspection Service (APHIS) Veterinary Services. Nor, he adds was the situation unexpected. "They [rapid tests] are designed to cast a very wide net in order to catch any possible animal that may have a condition, which will end up negative during further testing."

USDA posted news of the initial inconclusive test on its Web site at the close of trading on Friday. Whether the timing of the news was purposeful or coincidental, the markets had the weekend as a buffer.

"Some of the initial media reports were misstated, as they often are, saying that another BSE case had been found," says Jim Robb of the Livestock Marketing Information Center (www.lmic.info/). "We saw many of those types of reports in the Denver market and around the country." But on Saturday morning, there seemed to be more balance as the print media coverage used the word "inconclusive" and stated the large potential for false positives, he says.

"In my talks with market traders over the weekend, they expected that this news was going to be taken in a very cautionary way by the futures market traders," he says. "The Monday morning cattle futures markets were skittish, bordering on schizophrenic."

Before the start of cash trade opened Monday morning, cattle markets seemed to be waiting for final test results. Robb says the news about the inconclusive BSE test also seemed to be overshadowed by broader political events. Futures were off but not the limit, with the June contract off by more than $1 and the more deferred contracts by nearly $2 on fed cattle.

So, if "inconclusive" test results are going be the norm -- and if USDA continues to post them for public consumption -- what will be the long-term effect on cattle market psychology?

"The futures markets will quickly understand how to work in this atmosphere," Robb explains. "We'll see some market volatility, but not at the magnitude we saw last week." It will be another story though, he warns, should one of the inconclusives come back as BSE-positive.

"But, in the long run, logic in the markets will help dampen the volatility that will arise with the screening protocol," Robb says. "This is a good reason for USDA not to change course and for the agency to continue posting the inconclusive test results. Otherwise, we'd be inevitably working in a rumor environment that could be far more damaging to markets than the current protocol."

In any case, Robb advises cow-calf producers not to panic when news comes in of an inconclusive BSE test.

"For now, unless we get some really bad news -- a definite BSE case -- the fall calf markets are still very strong," he says, predicting that bids today at $115-120/cwt. for 550-lb. steer calves are probably as high as what we'll see in the fall cash markets.