From PinataIsland.info, the Viva Piñata wiki
A Goobaa can produce wool.
To make wool, a Goobaa is needed, as well as a Shearing Shed. Wool can be sold for 210 chocolate coins, and is needed for Kittyfloss romance. Wool can also be bought in the Village.
An in game rumor from Leafos states that if given to a Mothdrop it will become a Mothball. (False)