* Saskatchewan expects C$1.8 bln hit from low potash sales
* Sees 2009 sales at 4.4 mln tonnes, prices flat in 2010
* Province still forecasts a budget surplus (In U.S. dollars unless noted)
By Rod Nickel
WINNIPEG, Manitoba, Nov 19 (Reuters) - Potash sales in the Western Canadian province of Saskatchewan, one of the world's richest sources of the crop nutrient, have dropped to their lowest level in 37 years, punching a C$1.8 billion hole in its budget.
Saskatchewan was expecting C$1.9 billion ($1.8 billion) in potash revenue when it set its 2009-10 budget in March, but slashed that estimate to C$637.6 million in mid-August. Now it expects to take in just C$109 million, its lowest revenue from the fertilizer in 13 years.
"I said when I tabled the budget that the one thing that was going to keep me awake was potash," Saskatchewan Finance Minister Rod Gantefoer told reporters in the provincial capital of Regina while giving his mid-year financial update.
"I didn't think it would end up turning into a bit of a nightmare."
Gantefoer projects 2009 Saskatchewan potash sales of 4.4 million tonnes, its smallest output in 37 years.
Potash prices have tumbled as the recession cut into world grain prices and farmers put off applications of the crop nutrient, partly in response to an earlier price spike.
Producers, including fertilizer giant Potash Corp of Saskatchewan (POT.TO), responded to weaker demand by slashing production this year.
Saskatchewan budgeted in March for a potash price of $556 per tonne, but that dipped in July to $460 with Russian and Canadian sales to India.
In 2010, the province expects sales to rise to 10 million tonnes on the assumption that farmers will need to replenish the soil with fertilizer after holding back this year. The price will fall slightly in 2010 to $444 per tonne, which is still relatively high, the Saskatchewan government said.
In the same way that oil producing regions are closely tied to energy prices, Saskatchewan is sensitive to swings in potash prices because it is such a major source of the fertilizer and collects royalties from the industry.
The province said it is still on track for a C$424.5 million budget surplus by offsetting the loss of potash revenue with a combination of moves, including spending cuts, a dip into reserves and with expected higher revenues from other sectors such as oil.
It is one of only a few Canadian provinces projecting a surplus this year as the global recession continues to weigh on the national economy.
Saskatchewan will not add to its C$4.2 billion debt, Gantefoer added. The province's fiscal year runs April 1 to March 31.
Saskatchewan's economic outlook for next year is bright, notwithstanding the uncertain potash industry. The Conference Board of Canada predicted last week that the province will post economic growth of 3.7 percent in 2010, second-best in the country.
$1=$1.07 Canadian Editing by Rob Wilson