The animal rancher will shear all colored sheep in its range, voiding any wool drops it doesn't have space for. For example, here's a pen with 16 sheep, 1 of each color:

Running the animal rancher on this pen will shear all 16 sheep, but only collect the drops from 12 of them:

This isn't limited to shearing all 16 sheep at once. The machine will also void the extra drops it doesn't not have space for it left running. I feel like the machine should either skip shearing the animals or simply drop the items in world if there's no space in the inventory. I don't think it makes sense to shear the animal and void the drop.

Industrial Foregoing Version: industrialforegoing-1.12.2-1.8.9-138
TeslaCoreLib Version: tesla-core-lib-1.12-1.0.12
Crashlog (If Any): n/a

Perhaps it could pause itself when full? As a server owner I would like this :)