This bug has the same underlying cause as MCPE-95859: the game fails to load the vanilla behavior files after an update, presumably because it is in the process of installing an update when the player opens a world. One of two things is likely happening:
The game is looking for the files at the new version location where they have not been downloaded/unpacked to yet.
The game is looking for the files at the old version location, which has been removed by the install process.
The root cause of the issue is that on XBox the game can be running and installing an update at the same time.
You can reproduce the reported behaviors by using a behavior pack that has empty .json files.
Steps to reproduce
Create a world, spawn some cows, then save & quit.
Activate
on the world and reload.
Punch a cow or try to milk and breed the cows.
Expected results
(None, since we are emulating the bugged behavior indirectly.)
Observed results
Player has air bubbles as if underwater (MCPE-95859), punching a cow makes it float, and you cannot milk or breed the cows.
Note
The reports linked as duplicates of this one each describe some subset of the symptoms listed below. The issue is only reported to occur on XBox One. Some reports say that it occurred when opening a world for the first time after an update.
Tamed cats are tinted red, behave as if untamed, and may be enlarged.
Tamed dogs are missing their collars.
Tamed horses are missing their saddles, but still have their armor.
Tamed animals that were name-tagged lose their names.
Tamed or previously captured animals (= within simulation distance on relog?) cannot be interacted with (bred, sheared, milked, ridden, leashed, made to sit/stand, etc.).
Tamed animals do not drop anything when killed, or cannot be killed at all.
Wild animals or animals not within simulation distance when the world was loaded behave normally.
This issue is similar to MCPE-50467 in that the player loses control of pets, but the cause and additional symptoms here are different. In MCPE-50467 the underlying issue is the ~local_player UniqueID gets corrupted with each save/load. With this bug the mobs themselves are corrupted, losing some of their attributes and behaviors.
the animals in my farm no longer work. they dont give drops and cant be breed. sheep dont give wool. cows dont give milk and horses have lost all their saddles but still have any armour on them. cats have turned red and cant interact making them sit down but the also dont follow you about. animals in the wild that were not near us when we loaded in still give drops and function normally. this world was created maybe 2/3 months ago and everything was fine with them until now
Related issues
is duplicated by
relates to
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For those experiencing this issue, could you please answer the following questions:
Did this occur on the first world reload after after updating Minecraft to a new version?
Did this occur when reloading the world after a crash?
Do you have experimental gameplay enabled on the affected world?
Are you using any resource packs?
Does the issue resolve itself after relogging, or after a period of time, or after the next Minecraft update?
If you have a copy of the world available, you might like to upload a copy of it for investigation.
On Windows 10 you can use the Export world feature.
On Android or iOS you need to use a file explorer to navigate to Device storage > games > com.mojang > minecraftWorlds
On Xbox or Switch the only way is to upload it to a Realm, and then download the world on Windows 10 or Android/iOS. (Please do not purchase a Realms subscription just to provide a world to us - but if you have a Realm already this may be a viable option if you wish to do so.)
If the world is larger than 10MB you can upload the world to OneDrive or a similar file sharing site, and then share the link.

@GoldenHelmet
Did this occur on the first world reload after after updating Minecraft to a new version?
Yes, after the 1.17.30 update
Did this occur when reloading the world after a crash?
No
Do you have experimental gameplay enabled on the affected world?
No
Are you using any resource packs?
Yes, java texture pack. Disabling the texture pack does not affect the problem.
Does the issue resolve itself after relogging, or after a period of time, or after the next Minecraft update?
No
I had already installed some updates without any problems. That was the first time that this led to a bug. I suspect the following "mistake" I made this time.
I started the xbox, the update was not displayed to me at first (the xbox takes ages to display the available updates). So I started minecraft. It took a long time to start, the main menu had a pink background. When I loaded the save, I was floating in the air (I'm playing survival). I quit the game immediately, returned to the xbox main menu and found that an update was available. After the update, I reloaded the game and immediately had the issue described above (animals cannot be interacted with, animals don't drop anything, etc.). So I have the supposition that the problem is related to the fact that I loaded the game in an "old" version even though an update was available. I don't think there is anything left to restore here. But if that should be the cause, is there a possibility not to let the game start when a new update has to be installed first? I hope my description will help you find the solution.

I too had the same behaviour as above...with either the 1.17.30 or 1.17.34 hotfix, I loaded Minecraft without knowing there was an update available; the xbox said "Updating game, we'll let you know when it is ready" and when it did load, I was floating in the air; had bubbles above my HID even though I was not in water and could not go up or down even by interacting with stairs. I immediately quit and reloaded and everything then seemed fine, except that now all my pets/farm animals are broken. The 1.17.41 hotfix is now installed and this is when I noticed the animal behaviour but it probably happened previously, I had just been on a major project and not interacting with my farm since the "floating in air" thing. I'll be pretty miffed if I have to recapture all my farm animals - I had every single colour sheep and multiples of everything. This is a simple thing to avoid, Mojang - make the game check for updates FIRST before it attempts to load anything. Have also noticed that for the last couple of hotfixes the splash screen with the patch notes appears twice at first load. Seems like there isn't much quality assurance around these hotfixes any more. Unimpressed. My game is now virtually unplayable. 😞

I'll offer confirmation that animals previously tamed no longer interact or have context menus on 1.17.41.01 Bedrock Dedicated Server played through a Windows 10 client. Similar to Mike, I saw this on a previous load but not sure which one, and confirmed it when I patched up to 41.01.
Reply from @unknown: this report is for an XBox issue. Please create search and if necessary create a new report in the BDS project for your issue.

Is this EVER going to be fixed? It's been sitting here for 8 months! Also, you say it's for an xbox issue but people are obviously having the same issue on other platforms and you just close all the other tickets as duplicates which is why people are posting on here.

Comments on the bug tracker are for giving new information that might be helpful in reproducing or fixing the bug. It would be helpful, for example, to know whether you experienced the bug affecting previously unaffected mobs after the most recent update.
The bug tracker staff are volunteers and cannot answer questions about development schedules and prioritization. This report is restricted to XBox because it was only ever reported for XBox prior to Brian Blomgren's comment. Also, even if a similar effect can be produced on another platform, the way this bug happens seems specific to the way version updates happen on the XBox One and, apparently, that it allows you to load the game while in the middle of installing an update and/or tries to install updates while the game is running.