Tractor Repair: 1970 Ford 4000 3 cyl. diesel, power steering pump, head gasket

Question
Mr. Jossie,
I have been working a 1970 Ford 4000 3 cyl. diesel that has my local NH dealer and myself stumped.  It had oil in the water, new head gasket, machined head, water pump gasket, thermostat gasket, head pressure test.  Starts and runs fine, but there is still oil (maybe diesel) in the water.  Absolutely not water or diesel in oil.  Here's the weird part, removed plate where power steering pump would be and it is all coated with the same white frothy oil/ water "milk".  After looking at the parts diagram on the CNH website, it shows a cup plug behind the engine front cover.  But the bottom line is, we can't figure how the oil or diesel is getting into the water and not vise versa.  Any help would be greatly appreciated

Answer
Hello,

  Normally, the only way that oil can get into the water is if the engine has an oil cooler that is leaking.  This engine probably does not have an oil cooler, so that means there may be a crack or flaw in the casting of the engine block.  These engines were notorious for cracks developing inside the cylinders just below the top edge of the block.