Mix poppy seeds with 2 T. milk and vanilla sugar and allow to sit for at least 15 minutes. Bring butter to room temperature. Preheat oven to 325 degrees F.
Cream butter and powdered sugar with a mixer at medium high speed. Add eggs and extracts, mix well. Add poppy seed mixture, mix on low speed.
Sift flour with baking soda and salt, and add half of this mixture at a time to the mixer, alternating with the cup of milk. Beat until batter is smooth, scaping down sides of bowl.
Pour into greased and floured 9 x 13" glass pan or 2 9" round cake pans. Bake until golden and springy, 20-25 minutes for cake layers, or 35-40 minutes for the 9 x 13" pan. Let cool before frosting.
Beat the room temperature butter and sweetened condensed milk together until smooth. Add extracts and food coloring, then add powdered sugar a cup at a time, beating until smooth. The frosting should be pretty stiff. Makes enough for a layer cake, make half the recipe for the sheet cake.