One variation of a method for producing a smart yarn includes: aligning a set of sensing elements offset along a lateral axis in a magazine, wherein each sensing element in the set of sensing elements includes a sensor, a first conductive lead extending from a first side of the sensor along a longitudinal axis perpendicular to the lateral axis, and a second conductive lead extending from a second side of the sensor opposite the first side and along the longitudinal axis; wrapping a set of fibers into a yarn within a wrapping field; feeding a leading end of a first sensing element, in the set of sensing elements, from the magazine into the wrapping field; releasing the first sensing element from the magazine into the wrapping field; encasing the first sensing element between the set of fibers within the yarn; and repeating this process for the set of sensing elements.