The article says they argued that disposing of the milk would cause malnutrition. An obvious conclusion would be that they thought the risks from the contamination were smaller than the risks of malnutrition. They may well have known of some risks but not understood the magnitude.
When was it understood that radioactive iodine caused thyroid cancer, and that it could be mitigated by using iodine supplements? I couldn't find any info on exactly when that whole chain was put together (not that I tried super hard).
You don't actually need to dispose of it - Iodine-131 has a very short half life, so just make powdered or condensed canned milk and store it for 2 months and it's safe.
It is not that obvious when you take human nature into account - in fact, there seems to be a strong implication that the statement was transparently self-serving, and some other statements by the AEC undoubtedly were.
When was it understood that radioactive iodine caused thyroid cancer, and that it could be mitigated by using iodine supplements? I couldn't find any info on exactly when that whole chain was put together (not that I tried super hard).