Sheep skin is a wearable item which can be obtained by skinning a dead sheep with wool. It can also be sewn into a saddle using Needle and Thread. Sheep Skin does not decay.
Note: It is also possible to shear a dead sheep with wool, to obtain fleece (which has several uses), which is usually preferred over having an abundance of sheep skin lying around.
v.164, Sheepskin are now containable