Dye recipe comes from the spider twins quests, you make cloth from silk thread and you use dye to change the color. I got Yuki the monster from the Snowy Mountains region and he gives you broken glass when you ask for items from him.
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You need the right combo of sheep employees (you may also need to level the employee up to level 2 - I haven't needed them at level 3). There's a black sheep (Silas?) you can get from the 2nd level of advertising and a white sheep you can get from the 3rd or 4th level of advertising. They produce higher quality wool (both will tell you as much when you interview them) Some you may need to pair up together to get 5 star wool.