For all you wannabe Spicolis out there, I'm not talking about the wacky tobacky -- I'm talking about Potash (NYSE:POT). The world's leader in potash production, Potash just announced higher expected earnings for the second quarter of 2005.

In raising guidance from between $1 and $1.25 to between $1.40 and $1.50, Potash confirmed what fertilizer-industry watchers already knew -- an excellent spring has kept fertilizer prices red-hot. Better yet, production and distribution costs like natural gas and freight shipping have flattened out and in some cases declined.

So let's see. strong demand, record or near-record prices, and stabilizing costs. Sounds pretty good, doesn't it?

While ammonia, urea, and phosphate prices are marching toward 15-year highs, potash is already there, and Potash Corp is the No. 1 provider of the stuff in the world, controlling about 25% of the world's capacity.

In just two years' time, the price of potash has climbed by about 75%. Why? Because global capacity is extremely tight, and yet farmers want and need ever-increasing amounts of fertilizer. While Potash and other producers are working to bring more capacity online, so far demand is winning the race with supply.

Further, given that two-thirds of all the potash in the world comes from just two countries (Canada and Russia) and it takes about four years to bring up a new mine, it would seem that supply will be tight for at least a few more years.

Fertilizer is a cyclical business, and Potash stock has been on a rocket ride since early 2003. Even in 2005, when other cyclicals have been smacked down, Potash keeps pushing ahead. That said, I'm not sure I'd be buying much POT today.

While estimates keep going up in sync with potash and other fertilizer prices, the stock is trading at about 20 times forward estimates. That's a pretty steep multiple for me, given that I like to buy high-quality cyclical companies at no more than a low-teens forward valuation.

My hat's off to investors who choose to jump on and ride the cycle, but I think I'll stay on the sidelines. I have no doubt that strong demand and tight supply will fuel strong financial performance, but it looks to me like a lot of that is already baked into the stock.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).