Process coconut in a food processor until finely minced. Measure 1/2 cup coconut pour into a shallow bowl.
Stir confectioner's sugar, margarine, powdered milk, milk, and almond extract together in a bowl until smooth. Mix remaining coconut into milk mixture by hand. Cover the bowl with plastic wrap and refrigerate until slightly chilled, about 20 minutes.
Roll milk mixture into walnut-sized balls, press a hazelnut into the center of each ball, and roll balls in reserved coconut. Place candies in a sealable container and refrigerate until serving.