Instructions
Purchase Yarn Method
Purchase a yarn maker for 4500 G from Simon's General Store. Although you will not need to make yarn yourself with this method, you will still need the dyeing pot that comes with the yarn maker purchase. The store is open from 9 in the morning until 6 in the evening every day except Monday during in-game time.
Purchase yarn. During the Spring Flea Market on Spring 22, Simon sells decent wool yarn for 375 G. Shortly thereafter, Hannah sells good wool yarn for 465 G at the Animal Festival on Spring 28. If you miss either opportunity to buy yarn, you must make it yourself.
Dye the yarn red with the red herb. Stand before the dyeing pot in your barn with the yarn and the red herb in your rucksack. Put both the yarn and the red herb into the dyeing pot one at a time. You will automatically receive the red wool yarn.
Make Yarn Method
Buy a yarn maker with a dyeing pot. The yarn maker costs 4500 G. You can purchase the yarn maker only at Simon's General Store.
Purchase a lamb for 4200 G from Brownie Ranch. The lamb will automatically appear in your barn. After two weeks, the lamb will grow into a sheep. You can shear a sheep once every four days.
Buy shears from Brownie Ranch for 1200 G.
Use the shears to get wool from the sheep. Stand in front of the grown sheep, pull out the shears from your rucksack and cut the sheep's wool.
Put the wool in the yarn maker. You will receive yarn.
Place the yarn and the red herb in the dyeing pot. The result is red wool yarn.