Your picture looks familiar. Something similar to this happened to my peach tree last year right before it died. It was due to over watering. Apparently I had a raised pond next to the tree and it sprung a leak saturating the soil around the tree during its growing season. It didn't help that I also have clay soil which retains a lot of water and my peach tree was planted in the lowest part of the yard. All these factors worked against the tree's survival. The moisture level was too much for the tree to handle and the roots started to rot, eventually the leaves became yellow and shriveled. The fruits stopped growing in size and slowly became dry and shriveled as well. I stopped watering the plant once I figured out the tree was getting too much water but the damage was already done and there was no way to remove the hundred gallons of water absorbed by the clay soil which came from my leaking fish pond. The tree eventually died. Peach trees are extremely sensitive to over watering. Well drained soil is a must. If you have clay soil like I do, it's probably best to plant your future peach tree on a sloped part of the yard where the water drains away from the tree. Another option is to plant it in a raised bed to help with drainage. You could also mix sand in with your soil to make it less clay-like (which I find to be too much work). Also, keep an eye on the soil moisture especially during the growing season (spring through summer). If the soil is damp, the tree doesn't need to be watered. Good luck. I hope your tree recovers. Mine didn't.

MrClint and alan haigh - Just my comment on MY BYOC orchard. I plant each tree in 2x2x12 boxes spaced 6ft on center. I currently have 27 assorted fruit trees nearly all from DWN via distributor. Early on I wasn't courageous to properly head back several of my first trees and allow them to grow. 1st winter later I corrected some of those early mistakes and headed or pruned back down to scaffold a couple apples, pluots, E. pears and Asian pear, sometimes leaving only a nurse limb. On a precocious Blenheim apricot (one of my 1st BYOC trees that was headed to 22 in but the scaffold limbs were nearly24 inch w/o fruiting wood. It was a THREE year tree - 2nd winter 3+ inch caliper with 1.5+ inch scaffold limbs that I cut back to 8 inches. I didn't lose a one and other than sacrificing a year on fruiting, I'm thrilled I did that drastic scaffold pruning on the Blenheim, it's now budding. All my trees are headed around 18 inches - I maintain my orchard at 6-7 ft - I'm 5ft and want total access to my trees for spraying, netting, harvesting. BYOC low heading works. None of my trees are exotic/hard-to-find varieties so I take the attitude that size control and it's success is more important to me than losing 1 or 2 trees that only cost $20. If I hadn't followed the advice of "long time grower" on a forum, I would not have had the need for such drastic pruning. Just my two cents on the subject from one who's been there, done that.

jeepguy, I was thinking all the same things as fruitnut. One additional thing I would do is to seal that bark crack for the very reasons you mentioned. There is a lot of dispute these days over whether or not to seal tree wounds. There are commercially available tree wound sealers available, but I've found a caulking gun with latex caulk works well. Take along a wet towel and use your finger to rub it in, filling voids and sealing entrance to fungus, insects etc. Use a gray or brown color to not be unsightly. When I spray, I spray insecticide/fungicide good on those areas and after it has dried I apply the caulking/sealant. The bark will heal underneath and push away the sealant as callous tissue is formed. Like fruitnut said, the structural integrity is compromised on that limb, so baby it along for a few years and hopefully it will heal and knit up.

Here's some info from my book of diagnosis and solution: Cause: "Brown rot of peaches is caused by two similar fungi. Spores overwinter on infected twigs or on fruits that have hung on the tree all winter or have fallen to the ground. In spring, spores are carried by wind and splashing water to blossoms. Dead blossoms and leaves cling to the tree all season. Fruits may decay on the tree or after harvest. Cherries, plums, and quinces can also carry the disease." Solution: "Remove infected plant parts, use a fungicide, and increase air circulation. Prune off infected twigs and sterilize tools afterward. Remove and discard infected fruits from the tree and ground. When buds swell, spray organic lime-sulfur fungicide. As soon as flowers open, spray with organic sulfur fungicide, and spray with sulfur again 10 days later. Follow label directions carefully. Each year, thin trees while dormant to promote air circulation among the branches" Dax