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Yarn is 'sold' at the marketplace as clothing. It's a tier 1 clothing source, and the only real way to make sure you have some going to the tailor is to have more yarn than the market can support, so for example you have 1 herder, who has a stall, and as long as you are producing more yarn than he can 'sell', you have yarn going to the tailor. That's also if you are producing cloaks, as both gambesons and clothes use linen, not yarn.
Do you only have a pasture with sheep and no sheep farm, maybe? Because sheep need shepherds to shear them. Otherwise there won't be wool.
They could get around this by telling the storehouse not to store yarn. Just so long as they have another tier 2 clothing, like shoes.
You're definitely missing something, perhaps as Jabberworcky suggested you're missing a sheep farm.
Your leather is being turned into shoes. Pause the cobbler and let your leather build up again.