IIRC, that is a roller bearing, the rollers running directly on the inside of the input shaft, directly on the outside of the main shaft.
Hard to believe rust would have been enough to seize it that bad and then let go. I suspect the cage failed, wedged under the rollers and welded it. Either way, most likely both shafts are now ruined.
So, if it still works... You could probably get away with running it the way it is.
But, if there is major slop in the bearing now, it will allow the main shaft mounted gears to move away from the counter shaft gears, stressing the teeth, possibly breaking a gear or causing further damage.
You might give it a try, see what happens. But I would keep my ears on it, if things start getting worse, time to go in.
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Today's Featured Article - Storing Your Tractor - by Staff. If your tractor is going to be stored for any length of time, a few precautionary measures are helpful in preserving various parts, also in avoiding future difficulty. Store tractor under cover. If impossible to place tractor under cover, be sure to cover air stack and exhaust pipe. Drain radiator and engine block. To avoid gum content collections, drain both fuel tanks and carburetor. Leave radiator and fuel caps slightly loose to protect gaskets. Block tractor up to remove weight from tires and to keep tires from contact with moist floor.
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