Rain is a good thing, according to a popular country and western song. But this year’s weather in Saskatchewan is proof that you can have too much of a good thing.

In fact, 2010 was supposed to be the year the Saskatchewan economy rebounded from last year’s dismal 6.3% contraction, caused by plunging potash production.

But an exceptionally soggy spring and summer have put a damper on those hopes. And the growing pessimism has also cast a pall over the plans of the Saskatchewan Party to put the government’s fiscal house in order before next year’s provincial election.

The rains started in April, flooding farmland in many parts of the western grain belt. They continued throughout spring and summer, with storms causing major flood damage in Maple Creek, Saskatoon, Yorkton and North Battleford.

Insurance companies had handled damage claims well in excess of $100 million by mid-July, with half the storm season yet to come. Last year, there were no major storm-damage claims.

Saskatchewan farmers have borne the brunt of the damage. By mid-July, eight million acres were left unseeded due to excess moisture, while another four million acres were flooded out. Another 20% of the crop could be lost due to root rot, frost, pests and other damage.

That means Saskatchewan farmers could be harvesting about half a normal-sized crop in 2010, according to Saskatchewan Agriculture. Toronto-Dominion Bank estimates the income hit for farmers to be $1.6 billion, while Bank of Montreal is projecting that the income of Prairie farmers will fall by $3 billion, most of that in Saskatchewan.

TD is paring back its forecast for the province’s 2010 real gross domestic product growth to 2.1% from 3.1%. That one percentage point contraction in GDP will bump Saskatchewan from the middle of the pack to the bottom ranking among the provinces. Likewise, BMO is cutting its GDP growth forecast for this year to 2.6% from 4%.

Of course, the provincial and federal governments, which draw much of their support from rural voters, have not been deaf to farmers’ troubles. The three Prairie provinces and Ottawa have pitched in $450 million in emergency farm aid through the Agri-Recovery program, of which $360 million is destined for Saskatchewan. In addition to the $144 million in Agri-Recovery payments contributed from Saskatchewan’s coffers, the province’s share of $300 million in crop insurance (which is shared 60/40 with the federal government) is $120 million. Another $240 million is being earmarked by the province for flood damage in urban areas.

All of which adds to the fiscal burden of a province already labouring under the weight of a significant deficit. The good news is that the economic bounce-back that was supposed to happen in 2010 is now likely to happen in 2011. That’s when Saskatchewan should post GDP growth in the range of 4.4%, which would put the province back on top as the provincial growth leader.

Also in the “good news” category is the rebound of the potash industry, with production returning to more normal levels of nine million to 10 million tonnes (vs four million tonnes last year, a 60% reduction from the previous year). While potash prices remain relatively low (in the US$300-$310 per tonne range), the return to more normal levels of production will help replenish the province’s coffers in 2010.

The oil industry also continues to rebound, with 2,670 oil and gas wells forecast to be drilled this year, about a 40% increase over last year’s 1,892 wells drilled.

All of which augurs well for the government of Premier Brad Wall, who will seek his second mandate in November 2011, thanks to fixed-date election legislation his government brought in early in its first term of office. Given an average crop, solid potash and oil and gas production, things could start looking good for the re-election of the Wall government next year. That’s assuming the weather gods co-operate. IE