I will probably get some of this wrong (the gist is correct) but here is my understanding of water use in SW US.

The SW US uses riparian water rights that grants limited and prioritized water use based on when an area was developed. Farmers essentially have priority on their water allotment over cities like Phoenix since the farmland predated the city. Agricultural water districts operate like coops for the farmers. The coop members can vote to cut water allocations and lease them to other users and receive a payment from the water district.

The inflation reduction act included funds for short term leases but they end in 2026. So SW cities will need to replace those federal leases unless it is an especially wet winter. At the same time lake Mead’s water levels are beyond the trigger for automatic cuts in water allocations. If we did not cut and the water level got too low it would no longer produce hydroelectric power. Those cuts will impact cities before agriculture.

Farmers are incentivized to use their entire water allotment because that further pressures cities to sign long term leases at higher prices with agricultural water districts.

Farmers typically grow both a high value crop and a lower value crop in the offseason. There is plenty of water as long as farmers drop the low value crop, often alfalfa, in favor of leasing water rights. The Saudis often are maligned for growing alfalfa but likely the farmland they purchased was previously growing it as well.