[Child of the 7th Age]

You can't read this passage in a vacuum. I think we need to look at the section of the Letter that comes immediately after the Orc comment. It's clear that what Tolkien is doing is answering those critics who had complained about the way he had depicted his characters in LotR. He is stating an extreme position to say, even if the situation had been different his characters would still have been justified in their opposition to evil.

First, he relates it to a contemporary political situation: the elevation of the State-God and the need to oppose that. I believe the reference below concerning "Marshal This or That" is to Stalin who died in 1953; the horror of his crimes was just being fully revealed by 1956 when the first draft of this comment was written. As a result, Stalin was repudiated not only by the US and UK, but also by the successive Russian government. We are also presumably talking Cold War here: the Soviet Union vs. "The West". Tolkien was understandably suspicious of a country that then discouraged open Catholic worship. This section starts immediately after the sentence on breeding and using Orcs....

...As does the Cause of those who oppose now the State-God and Marshal This or That as its High Priest, even if it is true (as it unfortunately is ) that many of their deeds are wrong, even if it were true (as it is not) that the inhabitants of "The West", except for a minority of wealthy bosses, live in fear and squalor, while the worshippers of the State-God live in peace and abundance and in mutual esteem and trust.

He then goes on to tie this in with what the critics have to say about the "good guys" in LotR. Here is a portion of this...

So I feel the fiddle-faddle in reviews, and correspondence about them, as to whether my "good people" were kind amd merciful and gave quarter (in fact they do), or not, is quite beside the point. Some critics seem determined to represent me as a simple minded adolescent, inspired with, say, a With-the-Flag-to-Praetoria spirit, and willfully distort what is in my tale. I have not that spirit and it does not appear in my story......I have not made any of the peoples on the 'right' side, Hobbits, Rohirrim, Men of Dale or of Gondor, any better than men have been or are, or can be...."

Sounds like Tolkien was a little angry with those critics. It should also be noted that this essay (it wasn't a Letter) was written only for himself and was shown to no one during his life. JRRT seems to have been letting off a little steam and frustration.

Perhaps, with the reference to the 'Marshall' and contemporary politics, he's also implicitly acknowledging that in the real world there are times we do use Orcs to fight evil, not a good thing but, regardless, evil still has to be opposed.

Still, to see those remarks on paper, even in a theoretical context, did give me pause...