Patrick: I've never tried this, however the thought has crossed my mind. Your C-123 engine will be govorned close to 1600 rpm giving 540 rpm, pto and roughly 22-24 hp at that govorned speed. What your going to encounter with any diesel light enough and sized to fit in the engine compartment area, without looking like a jungle junk yard, the problem will engine rpm. Basically any engine that is going to look neat in that compartment is going to develop 25 hp at somewhere near 2500 rpm. It probably will not share the same longeiviety the C-123 engine has. Through the years, the truly efficient diesels have been the ones that developed max torque around 1500 rpm and had a govorned speed around 2000 rpm. Their efficiency came from both fuel savings and engine longeiviety. IH already tried what your proposing, it was called the 274. Basically an offset Farmall not a lot different than 140 other than they changed the transmission ratios to go from a 1600 rpm engine to a 2500 rpm diesel. The results were a disaster. I have two friends that bought 274s new for their commercial vegetable farms. Today the 274s are gone, and they are using a SA and 130 respectively. Numerous farm equipment companies have tried this getting hp from rpm rather than cubic inches, most have failed miserably.
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