Potash has no spot market.

The Belarusian Potash Company (BPC), the world's largest potash trading company, controls 45% of the world's potash output and sets benchmark international potash prices. Industrial buyers agree on prices with the BPC in one-year contracts.

Potash is a mineral form of potassium, and a key ingredient in fertilizer. For the last 20 years, farmers have bought potash for about $125 a ton. But the BPC started the year selling potash for $270 a ton. It quickly raised the benchmark price to $450 a ton. In March, it raised the benchmark to $650 a ton. Last week, the BPC announced its latest price hike. On June 1, it will begin selling potash for $1,010 a ton. That's a 274% price increase in six months... and a 709% leap from its 20-year norm.

Prices for potash are rising so fast, stock analysts can't maintain their spreadsheets. They update their models on Monday. By Friday, the models are obsolete...

And the stock prices of potash producers are arcing into the sky like fireworks, too. Take the Potash Corporation of Saskatchewan, for example. The largest potash producer in the world, its stock price has risen 1,000% in the last five years and 620% since June 2006. It's now the second-largest company in Canada, ahead of EnCana and the Royal Bank of Canada. It trades for 10 times book value and more than 46 times earnings.

Uralkali, a large Russian producer, has seen its shares rise 1,984% in the last three years.

Intrepid Potash, the only American producer, floated shares on the stock market for the first time last week. Its shares rose 58% on the first day of trading.

You couldn't make me invest in the big potash producers if you put a gun to my head. This is a classic investment mania. Commodity producers have huge capital expenses and nearly no competitive advantages. They should not sell for 46 times earnings.

Here's the thing: While I wouldn't touch the major potash stocks, I still think potash, the commodity, could go much higher.

China is the world's largest consumer of potash. In 2007, it bought 2.5 million tons in a contract with the BPC. The supply crunch is so serious, this year the BPC could only sell China 1 million tons. My point is, even at $1,000 a ton, potash supplies still cannot meet demand.

So potash prices can keep rising. How far? Consider this: Before potash was discovered in New Mexico, Germany was the world's only supplier. In December 1915, when World War I cut trade between the United States and Germany, potash prices jumped from $35 per ton to more than $500. In today's money, that's the equivalent of more than $10,571 per ton.

My advice: Don't buy the major potash stocks. The upside is already "priced in." If potash doesn't rise, these stocks could collapse.

If you want to invest in potash, buy the potash "juniors" and use a stop loss to limit your exposure. These small potash companies are building mines in risky countries. They're risky, but you get a big discount on the potash in the ground. If potash keeps rising, you'll multiply your money. If it doesn't, you'll lose only as much as you've put at risk.

Good investing,

Tom