Knitting is often done with wool yarn from sheep. There are many different grades to choose from, from the baby lamb's hypoallergenic wool to the first shearing of the season. Raw wool has to be further treated in order to be machine washable.
Some other types of wool are derived from the breed. Icelandic Wool also known as Lopi yarn is one of the warmest available and is made by processing the water-resistant outer layer with the soft inner layer.
Merino Wool is the softest wool you can find and suitable for all seasons. Hence, it is often used to make baby clothes and accessories. Super cute, the sheep too.
Shetland Wool is derived from sheep grown in the Scottish Highlands. A high quality wool that takes to dyes and can be spun finely. Heard that this is one breed that can produce a pure black yarn without dyeing.