It is unusual for water to stop a hydraulic system from working. It may not be working right, certainly not good for it, but it should still work.
Any chance what you are seeing is air whipped into the oil? If there is a leak on the suction side of the pump, it will suck air, moan, have jerky action, possibly quit completely if insufficient oil is getting too the pump.
Take another sample from the drain plug in a clean glass. Catch the first flow. If water it will settle to the bottom. Air will rise to the top. Try to save the oil in a clean container. If it is air it can be reused.
With the drain open, let it drip to stop. Fill the radiator, pressure it up, see if coolant comes from the drain. If so, somewhere there is an oil cooler that is leaking.
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Today's Featured Article - Restoration Story: Fordson Major - by Anthony West. George bought his Fordson Major from a an implement sale about 18 years ago for £200.00 (UK). There is no known history regarding its origins or what service it had done, but the following work was undertaken alone to bring it up to show standard. From the engine number, it was found that this Major was produced late 1946. It was almost complete but had various parts that would definitely need replacing.
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