The best version of the underlined pronoun in the sentence is C. their.
Here's the reasoning: In the context of the sentence, "its" refers to "woodland homes," which is a plural noun phrase (homes belonging to multiple animals). Therefore, "their" is the appropriate pronoun to indicate possession for the plural noun (the animals).
The revised sentence would read: "In the poem 'The Armadillo,' Elizabeth Bishop presents a scene in which celebratory fire balloons crash and force forest animals to flee their woodland homes."