Although South Africa's summer grain harvest still hangs in the balance because of the worst drought in decades, last month's rains have been a blessing for commercial farmers like Kallie Schoeman.Based in Delmas, Mpumalanga, Schoeman runs a 10000ha farm that produces mainly maize (60%), with soya beans and small white beans making up the balance.But like every grain farmer in the country, he remains concerned about the damaging effect of the drought on his crops, which will be harvested in May.South Africa is in the clutches of the El Niño weather pattern that is threatening food production, and which will affect neighbouring countries such as Botswana, Lesotho and Swaziland.In the past nine months or so, South Africa has exported 336642 tons of maize to countries in the Southern African Development Community, according to the South African Grain Information Service.Schoeman predicts that the drought will have dire consequences for SADC countries."Rain is absolutely critical. There is a lot that can still go wrong, but we are positive at this stage because there is much more moisture, especially underground, which can help this crop," he said.Without crop insurance, farmers are likely to suffer financial losses if hot temperatures persist into autumn.Grain farming is capital intensive as farmers require implements such as tractors, which cost up to R3.5-million. Typically, this requires lending from financial institutions.Furthermore, grain farmers are only paid at the end of the harvest period.According to preliminary estimates, local producers may realise 7.4million tons of maize this year, 25% lower than last year. Estimates for soya beans, sunflower seed and dry beans have also been reduced.Although the extent of the drop in the expected maize output is large, the figures released last week were better than market expectations.Still, prices remain near record highs on the South African Futures Exchange, with white maize having doubled from R2256 a ton a year ago to R4865 a ton now.These spot prices bode well for Schoeman, who sells 70% of his crop on the cash or spot market while hedging the balance. The caveat, though, is that he must deliver the grain stock, which for now still depends on follow-up rains. Schoeman said the Delmas area had received above-average rainfall in January.Mpumalanga, North West and the Free State produce the bulk of the maize crop.Fanie Brink, an independent agriculture economist, said that "the farmers in the eastern production areas - Mpumalanga and KwaZulu-Natal - who planted more or less on the optimum planting date will definitely be winners because of the much higher price", provided that their harvest this season was more or less the same as last year.The envisaged shortfall in crops such as maize and sunflower, which are key inputs in foods like maize meal and cooking oil, has helped trigger concerns about inflation, expected to breach the upper limit of the Reserve Bank's 3% to 6% target range this year.The effects of the drought will be felt far and wide, from farmers to consumers.The price of super maize meal (5kg) rose 17% in December on a year-on-year basis, according to the National Agricultural Marketing Council. The price of sunflower oil (750ml) rose 16.2% and that of brick margarine (500g) 15.5% in the same period.If South Africa realises a smaller crop, as forecast, it would have to import about three million tons of maize to satisfy the local demand of about 10million tons.Another challenge to local farmers is the weaker rand, which will probably inflate the cost of production."All our production costs are going to go up. I am talking about fertilisers, chemicals and implements, because these are all imported," said Schoeman, who employs 280 permanent workers on his farm.Companies that need to import will likely pay more to import maize and soya beans because the rand has weakened 42% against the dollar from a year ago. Maize and soya are primary ingredients of poultry feed.Anthony Clark, an analyst at Vunani Securities, said: "My near half-year of negativity on the food manufacturing, processing and poultry sector continues unabated as the underlying problem with the maize harvest in South Africa alongside the higher tariff slapped on wheat imports have hit the sector."..