Combine equal parts potting soil, coarse sand and fine-milled peat moss. Add 1/2 cup bone meal to every 12 qts. of the soil mix.
Fill the new pot 1/3 full with the potting mixture. Use a container one size larger than the pot in which the pencil cactus is currently growing.
Don a pair of latex or rubber gloves. Place your hand over the top of the cactus pot so the stems of the pencil cactus emerge between your fingers.
Turn the pot upside down. Thump the pot bottom and sides until the pencil cactus slides out into your waiting hand.
Set the pencil cactus inside the new pot. Add more soil beneath the root ball, if necessary, so the top of the roots sit 1 inch beneath the rim of the pot.
Fill in around the roots with additional soil mix. Water the mixture until moisture just begins to drip from the bottom of the pot.