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The Saskatchewan government, like the potash companies that operate in the province, has taken a sharp financial hit from the decline in demand for the fertilizer.

But the province is projecting a substantial turnaround next year, as farmers around the world who have been loath to pay high prices for fertilizer are forced to buy it to keep their crop yields from declining.

Saskatchewan Finance Minister Rod Gantefoer issued a midyear financial update yesterday that said the province will take in a relatively paltry $109-million in potash royalties this year, a tiny fraction of the $1.9-billion it expected in its original budget forecast, and $529-million less than the reduced first-quarter revision.

The province will still manage a balanced budget for the year, he insisted, but that's thanks to increases in oil revenue, taxes and federal transfers, and a dip into the province's rainy-day fund.

Saskatchewan is projecting potash production of just 4.4 million tonnes this year, the lowest level since 1972, as producers cut back to meet the declines in demand. Potash prices are well below their peaks of last year, but still very high by historical measures, at around $500 (U.S.) a tonne.

It's no surprise that farmers everywhere in the world have been hesitant to buy fertilizer, Mr. Gantefoer said in an interview. "There comes a point when input prices rise [so much] that there is a pushback," he said. "They say 'There's just no damn way I'm paying that much.' "

Softening of grain prices has also hurt farmers' ability to pay, and the uncertainty surrounding the recession hasn't helped either, he added.

Analysts at UBS Securities Inc. have gone so far as to describe the current situation as a "buyer's strike."

Still, there is an "inescapable" reality that will eventually bring back demand, Mr. Gantefoer said. At some point farmers will have to boost the fertility of their soil, and they will need fertilizer to do that. That is especially true in Asia, where fertility has been diminished by centuries of farming. Consequently, Saskatchewan is projecting 2010 potash production will more than double from this year to 10 million tonnes. Still, earlier predictions of a turnaround in the potash market have proven premature. Both Potash Corp. of Saskatchewan and Agrium Inc. said this summer they expected improving demand, but it has not yet arrived. Last month Potash Corp. reported a two-thirds drop in revenue and an 80-per-cent drop in profits in its third quarter.

POTASH CORP. (POT)

Close: $120.76, up 76¢

AGRIUM (AGU)

Close: $60.76, up 73¢