You can find sheep in various locations in Spiritfarer. These creatures are beneficial because of the wool they have that you can use to complete several recipes. While you may notice and interact with sheep during your travels, there’s a specific location you need to visit.
The individual you can find is on the Mount Toroyama island. You can find it X: -99, Y: 34. You can choose to go out of your way to find this island or wait to come across it during your adventure naturally.
When you arrive on the island, speak to the spirit located at their house. They need you to lure the sheep on their island back to its enclosure. You can attract it to the sheep pen by using food. Approach the sheep and interact with it to give it some food that you have on you. Once the sheep eats, it should willingly follow you back to the enclosure, which you can find by turning around the way you came to the pier where you first arrived on the island.
After bringing the sheep back to its pen, the spirit asks you to collect other sheep you find on your travels to the island. You can find ship across the numerous islands you explore, but to lure a sheep back to your boat, you need to have a sheep corral on your vessel. As you progress through the game, you will naturally unlock this structure. For those traveled to Mount Toroyama immediately, you may not have access to it until you play more Spiritfarer.