"Since 2001 there has been a marked advance for coffee (Arabica) of roughly 140%. Also, notice the big crack last year, which marked the advent of the big commodity crash as credit troubles in the world economy eventually killed the bull market.

"From its all-time contract high of $181.50, coffee prices have declined to $119.20 or down a cumulative 34%.

"Colombia, ranked third in the world after Brazil and Vietnam in coffee production, continues to see its supplies decline in 2009.

"Other important regional growers in Central America have also witnessed declining production while adverse weather conditions continue to plague harvests in Brazil, Vietnam and India.

"The International Coffee Organization has recently reduced its global coffee output estimate for 2009 to 127.8 million bags from a previous forecast of 133.4 million bags, a decline of 4.2%. In 2007/08, coffee production hit 116.5 million bags.

"Colombia remains the main concern for the current supply gap because of heavy rainfall and a temporary fall in production due to lower acreage. Estimates now stand at 10.5 million bags against a previous estimate of 12.3 million bags. Each bag is 60 kilograms.

"And in Vietnam, the world's largest coffee producing nation, estimates stand at 16.0 million bags against the previously estimated 19.5 million bags for 2009.

"We think this is a smart speculation at this price amid a serious supply problem for Arabica and non-Arabica beans.

"Recently, Kraft Foods and Folgers, two huge suppliers of retail coffee, said they will raise their prices by almost 20% to compensate for higher prices eating into their margins.

"The only index-related trade to play coffee is the iPath Dow Jones-AIG Coffee ETN (NYSE: JO). From its high since going public last summer JO is down 26% and is up 8.5% in 2009 while most global indices are still deep in the red.

"Coffee displays a negative correlation to most financial assets (stocks and bonds) and offers optimal portfolio diversification. It's also hugely volatile."

Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.