How does his observation that the sheep have forgotten to rely on their own instincts foreshadow what might be coming in the novel?

Santiago's
observation about the sheep having "forgotten to rely on their own instincts" helps to
communicate how a significant aspect of being in the world is to not be "safe."  The
sheep embrace a "safe" world of being.  They follow the herd.  They worry only about
survival in terms of eating and drinking.  There is little risk taking in their means of
existence.  Natural instincts of struggling, seeking to grow, and taking the risk of doing
something different have become replaced with a sense of complacency. These elements that help
to define nature are no longer seen in the sheep.  Santiago interprets this to be part of the
human condition he sees around him.  

Such a dynamic foreshadows what will
transpire in the novel.  This interplay between merely surviving and living life is what will
guide Santiago, the eventual embrace of his own journey, and differentiating between the people
he meets on it.  The forgetting of instincts that are essential to growth and struggle can be
seen in characters like the crystal merchant as well as his father, characters who are more
focused on the present than any possible transformational notion of the future.  At the same
time, what it means to live life in terms of those instincts that inspire growth and raise
challenge to the condition of what is and make it what should be are the elements that Santiago
will embrace on his journey towards his Personal Legend.