I read in the rules that naval retreat is always priority 1, therefore, the force cannot retreat to Baton Rouge in any case. I think you can take the entire force even as an army.
yes naval retreats always end in priority 1 space and must be done before other priorities if available.
also, when retreating like this, there is no limit to generals and SPs unlike naval moves and attacks. the updated 2014 rules help clear this up.