After updating to version 1.17.40, I noticed that the sheep in my automated wool farm were not sheared. After checking that shears were in all of the dispensers, I watched the sheep for a bit.
I found that after the sheep eat the grass, the grass block does not change to a dirt block, and the animation the sheep usually perform after eating (a poofing effect is the best description I can think of), does not play, nor does the sound effect that accompanies it.
I wondered if it were only the sheep in my farm, and wandered 500+ blocks away to find another sheep. I found that the same thing was happening to the sheep there, the grass block did not change to dirt, there was no poofing animation, and no sound effect.
Do you have the "Mob Griefing" game rule enabled?