When a sheep still has its wool, the wool on its head doesn't render correctly.
When a sheep's head move up the wool on its head remains static giving a weird visual bug.
The wool is still there, as in you can shear it. This is strictly a visual glitch.
Duplicate of MC-46550 - If you have not, please use the search function in the future, to see if your bug has already been submitted. If you could not find the original report, please comment with the keywords you searched for.