You will not see the option the craft the cloth until you finish quest 2, and get quest 3.
2. Ain't No Party Like A Castle Party!
* 40 Bacon
* 4 Breaded Fish
* 4 Hot Sauce
* 5 Ice Cream
* Debut the Troll Castle (collect from it)
3. Unacceptable condition
* Upgrade troll castle
- 20 iron ore
- 20 fertilizer
- 4 Royal block
- 3 woven cloth (takes 3 hours to make in workshop using):20 wool, 10 hide