1963 Ford 4000 Backfiring Issues

The post labelled 1 on the distributor cap is only correct if the distributor was installed so that the post marked with the 1 is where the rotor points when the number 1 cylinder is at the top of the compression stroke. The distributor can be installed such that the rotor can point in just about any direction so that marking on the distributor cap is only correct if the person that installed the distributor the last time took care to install it so that the number 1 post position was correct. The number 1 and number 4 cylinders are at the top of their strokes at the same time, but one is at the end of its exhaust stroke while the other is at the end of its compression stroke.
 
If it were my tractor I would get a small wire wheel brush for the drill and clean the fly wheel so all of the timing marks are visible. That notch made by the previous owner means nothing unless you can prove it is actually at the 0, (4?) degree mark. You said you rotated the distributor cap. I am assuming you rotated the spark plug wires because the cap is notched and can only seat in one position. Once your timing marks are clean remove all the spark plugs and again stick your finger in the #1 spark plug hole and when you feel the pressure puff, stop. From this point slowly rotate the engine until the true timing marks appear and stop at the degree mark stated in your manual. Place the cap on the distributor in the correct position lining up the notch. Mark the location of the #1 wire with a sharpy on the edge of the distributor. Remove the cap and install the rotor with the clip under it. The sharpie mark should line up with the copper end of the rotor cap. If the alignment looks close set the timing per the manual. If the alignment is way off, in your case pointing at a different wire, you may need to remove the distributor and reinstall per the manual. If you get it running with no back fire then complete the timing and advance check with a timing light. It is worth the time to do it right even if you have to remove and reinstall the distributor. Be patient but I guarantee that when you get it right it will all be worth it.
 
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