What wood would work best?

I've actually made two coops from recycled fence.
63768_coop_2_chickens_052.jpg
 
Cedar is great to build with as mgw said. Put a few coats of a nice oil deck stain on it and it will be awesome.

Aromatic cedar can be a problem but that is a different tree.
 
Cedar is reasonably rot-resistant but IMO it is unnecessarily expensive for a coop, unless you just happen to WANT to use cedar. Plain ol' spruce-pine-fir type lumber works just fine and is much cheaper, also STRONGER than cedar frankly, just prime and paint it (or stain or otherwise seal) it.

Although, you do want to use something somewhat rot-resistant for ground contact areas. Pressure-treated lumber is BY FAR the most durable choice -- realize that while heartwood cedar is pretty tough, the stuff you buy at the lumberyard for like twice the price of p/t lumber is generally NOT heartwood, it is the softer parts that are not all *that* much better than untreated pine, especially for direct ground contact. So while some people will use cedar for ground-contact parts of the coop/run if they are philosophically opposed to pressure-treated stuff, you want to think through the REALISTIC properties of what you'd be using. If you want something fairly rot-resistant but don't want p/t, big (5-6" diameter) white cedar fenceposts, like you'd use for farm fencing, are a pretty good substitute for run posts and for coop posts/legs.

Good luck, have fun,

Pat
 

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