As someone who is of Lithuanian background, and even living in Lithuania, the first question is should the bacon be cold or hot smoked?
Actually, it would be much better, and authentic, to use what is called "salt pork" in the US... hardly any "meat"in it at all.
Also, most American-Lithuanians I knew in the US use a "safety grater", which looks like a metal tennis racket to grate the potatoes... the flaky shreds add a depth that simply shredding will never accomplice. Sadly, here in Lithuania, most people who make this regularly use a machine to grind the potatoes down... this absolutely sucks, as it makes this strange, almost rubbery loaf.
Depending on how long you cook it, and how you want it too look, you can always use regular milk.
Some "traditional" recipes call for burying a pig's ear or a piece of chicken in the loaf before you cook it, but then again, what's so traditionally Lithuanian about potatoes, which didn't even show up in Lithuania until the later 17th Century?
And why call it "Kugelis", when people in Lithuania, up until the early 20th C. called it "Babka"? Thanks, Jablonskis...
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As someone who is of Lithuanian background, and even living in Lithuania, the first question...